Putnam
Master
Intermediate
Income Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
You may have seen media coverage of market timing allegations involving
Putnam Investments. A separate letter has been sent to you detailing the
steps being taken by Putnam Investments to address these matters. In
addition, the Board of Trustees of The Putnam Funds is conducting an
independent investigation of these issues. When that investigation is
complete, we will report to you on the steps we are taking to make sure
that nothing like this happens in the future. We will, of course, ensure
that your fund is fully compensated for any losses resulting from
improper trading activity at Putnam. We appreciate your loyalty and want
you to know that we intend to restore full confidence in Putnam, an
organization that aspires to the highest ethical and business standards.
The balance of this report focuses on the performance of your fund. We
are pleased to report that Putnam Master Intermediate Income Trust
recorded a robust gain, at net asset value, for the fiscal year ended
September 30, 2003. It strongly outperformed its primary benchmark
index, though it came in slightly below its Lipper category average. You
will find the details on the facing page.
The management team's decision to focus more heavily on lower-rated
higher-yielding bonds provided the impetus behind these results. Their
efforts to reduce the fund's sensitivity to interest-rate changes proved
successful and a favorable currency strategy also contributed to the
positive performance.
In the following report, the managers provide a detailed discussion of
their approach to the market environment that prevailed during the
period. They also offer their views on the fund's prospects for fiscal
2004.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 19, 2003
Report from Fund Management
Fund highlights
* During the fiscal year ended September 30, 2003, Putnam Master
Intermediate Income Trust had a total return at net asset value (NAV) of
20.42%. The fund's return at market price was 8.35%.
* The fund outperformed its primary benchmark, the Lehman Government
Credit Index, which returned 6.51% during the period. The fund's other
comparative indexes, the Citigroup Non-U.S. World Government Bond Index
and the JP Morgan Global High Yield Index, returned 17.80% and 27.18%,
respectively.
* Due to its underweighting in emerging-market securities, the fund
underperformed the average return of 21.85% for the Lipper Flexible
Income Funds (closed-end) category.
* The fund's lower performance at market price was primarily the result
of a reduction in the fund's dividend, which occurred in February 2003.
See page 5 for details.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
The fund's fiscal year began just weeks before a turning point in the
bond market. Starting in mid October 2002, higher-yielding, non-Treasury
bonds began to significantly outperform Treasuries. This outperformance
benefited the fund, which was invested predominantly in such bonds --
corporate investment-grade and high-yield bonds, emerging-market bonds,
and mortgage-backed securities. As bonds from these sectors appreciated,
the credit spread, or difference in yield between Treasuries and these
higher-yielding securities, narrowed, bolstering the fund's returns. As
a result, the fund strongly outperformed its benchmark index, which is
composed of lower-yielding, higher-quality bonds (including Treasuries).
The fund's underperformance of its Lipper category average reflects our
underweighting of emerging-market securities relative to other funds in
the category, discussed further on page 3.
FUND PROFILE
Putnam Master Intermediate Income Trust seeks high current income and
relative stability by investing in limited-maturity bonds in the
investment-grade and high-yield sectors, as well as non-U.S. bond
markets. The fund is designed for investors seeking high current income,
asset class diversification, or both.
The significantly lower return at market price reflects a reduction in
the fund's dividend, which caused investor demand for the fund -- a key
factor in market price performance -- to decline.
Market overview
The beginning of this fund's fiscal year in October 2002 marked a
seminal change in the global credit markets. Hints of an economic
recovery, a passing of the September 11 anniversary, and an improvement
in the stock market all contributed to a sudden improvement in the
direction of credit spreads. As a result, investment-grade corporate
bonds, high-yield corporate bonds, and emerging-market bonds all
significantly outperformed U.S. Treasuries over the course of the
reporting period.
In July and August of 2003, Treasury prices declined sharply after
rallying in May and the first half of June. Having reached a historical
low of 3.11% on June 13, the benchmark 10-year Treasury yield -- which
moves in the opposite direction to its price -- then increased by over
one and a half percentage points by the beginning of September -- an
extremely large increase for a 10-week period. While this event shook
all fixed-income sectors, higher-yielding bonds with lower sensitivity
to interest-rate changes (which made up much of the fund's portfolio)
fared much better than Treasuries.
Mortgage-backed securities performed well for much of the year, but
their performance suffered somewhat during the summer because of
excessive refinancing. When homeowners refinance their mortgages at
lower rates, they "prepay" their existing mortgages, hurting investors
who have been receiving these higher levels of interest income.
Emerging markets generally fared well, with above-average returns that
we attribute to higher commodity prices, especially oil prices. The
dollar continued to move lower relative to other major currencies,
including the yen and the euro, as low interest rates and the threat of
deflation in the United States caused global investors to seek higher
returns in other countries.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 9/30/03
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Bonds
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Lehman Government Credit Index 6.51%
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JP Morgan Global Diversified Emerging Markets Index 29.19%
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Citigroup Non-U.S. World Government Bond Index
(international bonds) 17.80%
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JP Morgan Global High Yield Index (high-yield bonds) 27.18%
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Equities
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S&P 500 Index (broad stock market) 24.40%
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Russell 2000 Growth Index (small-company growth stocks) 41.72%
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Russell 2000 Value Index (small-company value stocks) 31.66%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 9/30/03.
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Strategy overview
Several of the fund's areas of emphasis -- including high-yield bonds,
mortgage-backed securities (MBSs), and international bonds -- performed
well during the period. Our significant allocation to high-yield
corporate bonds, which increased during the second half of the period,
was particularly helpful, as they were among the strongest-performing
fixed-income securities over the period. As yield spreads narrowed
toward the end of the period, we reduced this allocation, but still
maintain a large high-yield weighting. We sought to keep the fund's
exposure to another higher-risk area of the portfolio -- emerging-market
securities -- low (relative to the fund's competitors). Because this
subgroup of the fund's international holdings delivered strong
performance, our strategy detracted from the fund's relative
performance.
Over the second half of the fiscal year, the fund was much less
sensitive to interest-rate changes than other funds in its category,
reflecting our decision to keep the portfolio duration (a measure of
interest-rate sensitivity) relatively short. While rates continued to
decline in May and June, this positioning hurt relative performance, but
when rates spiked in July and August, the fund gained significant ground
against funds in its peer group. The fund's currency strategy has been
on target; we emphasized the Australian dollar and European currencies,
and continued to underweight the U.S. dollar. Toward the end of the
fiscal year, we also began to increase our emphasis on the yen. All of
these positions were beneficial to the fund's absolute and relative
performance.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED
as of as of
3/31/03 9/30/03
High yield 45.9% 48.1%
U.S. investment grade 31.1% 27.2%
International 23.0% 24.7%
Footnote reads:
This chart shows how the fund's weightings have changed over the last
six months. Weightings are shown as a percentage of total investment
portfolio. Holdings will vary over time.
How fund holdings and sector allocations affected performance
Throughout the year, the fund's largest sector weighting (close to half
of its assets) was in high-yield bonds, and this position was a
significant contributor to the fund's strong returns during the period.
High-yield bonds have performed well during the past 12 months for
several reasons. Among the most important is the decline in default
rates. Although still high by historical standards, corporate defaults
have steadily declined since hitting a peak in January 2002. This trend
has been seen as a positive sign that, if it continues, may help
high-yield bond performance over the next several years. Second,
fixed-income investors have been seeking higher yields and have become
more willing to take on risk in exchange. As a result, high-yield bonds
have significantly outperformed Treasuries, causing a narrowing in the
yield spread between Treasuries and high-yield bonds. This narrowing has
been another strong driver of high-yield bond performance. Finally,
corporations are generally focusing on reducing debt, improving their
balance sheets, and increasing profits -- all of which have generally
helped improve credit quality in the high-yield market.
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TOP HOLDINGS
High Yield Sector
1 HMH Properties, Inc.
Company guaranty, Ser B, 7 78s, 2008
2 Qwest Services Corp
144A notes 13 12s, 2010
3 Pioneer Natural Resources Co.
Company guaranty 9 58s, 2010
International Sector
1 Russia (Federation of)
Unsubordinated bonds 8 14s, 2010
2 United Kingdom
Treasury bonds, 7 12s, 2006
3 Germany (Federal Republic of)
Bonds, Ser. 95 7 38s, 2005
U.S. Investment Grade Sector
1 Government National
Mortgage Association
Pass through certificates, 5s, TBA
October 1, 2033
2 Federal National Mortgage Association
Pass through certificates, 6 12s, TBA
October 1, 2032
3 US Government Treasury notes
1 58s, March 31, 2005
Footnote reads:
These holdings represent 16.5% of the funds net assets as of 9/30/03.
Portfolio holdings will vary over time.
Bonds of several corporate high-yield issuers performed well for the
fund during the past year, including those of HMH Properties, Inc. and
Qwest Services Corp. HMH, which owns the Marriott hotel chain, has
benefited from an improvement in the hotel business since 9/11. The
company is financially strong and has dependable cash flows. Qwest, a
telecommunications company, has increased significantly in price and is
one of the fund's top-performing high-yield holdings. We felt it was
attractively valued, and the market has concurred in the past six
months. Qwest has worked through an SEC investigation of its accounting
practices, sold its directory business, and cut costs and reduced debt.
Some industrial holdings made positive contributions in the high-yield
portion of the fund, including Tyco, a conglomerate, and Georgia Pacific,
a large paper company. These firms benefited from the strength of the
high-yield bond market and the recovering economy, which has translated
into increased availability of funding for them.
The fund's holdings of AK Steel Corp. and Collins and Aikman Products,
an auto and truck parts maker, detracted from performance during the
period due to disappointing earnings. However, if the economy continues
to grow, as we believe it will, we expect these holdings to benefit. We
have maintained the fund's positions. Mortgage-backed securities (MBSs),
a subgroup within the fund's U.S. investment-grade sector, were among
the weakest-performing securities in the fund on a relative basis,
primarily because of the refinancing crunch that occurred in the spring
and summer of 2003. However, our strategy of investing in different
types of MBSs helped us take advantage of the diversification this
sector offers while maximizing the available opportunities. For example,
we invested in commercial mortgage-backed securities, which are less
prone to refinancing than residential mortgages, as well as
agency-wrapped FHA/VA reperforming MBSs. These are traditional
mortgage-backed securities in which the borrowers have become delinquent
on making payments for a period of time and, as a result, the securities
are less likely to be refinanced. Because these securities are
guaranteed by government-sponsored agencies (Fannie Mae and Freddie
Mac), they do not represent a major credit risk, and the fund has
benefited from the higher income that they produce.
The fund's international bonds benefited from slowing global economies,
especially in Europe, where the fund's Swedish government bonds
outperformed. These securities attracted investors in part because they
outperformed German government bonds. Canadian and New Zealand
government bonds also performed well for the fund, benefiting from the
countries' commodity-based economies. European high-yield bonds, a small
allocation in the fund, had weaker performance than their U.S.
counterparts, primarily as a result of slower economic growth in Europe,
but they still made a solid contribution during the year.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
OF SPECIAL INTEREST
As a result of significant declines in the yields of shorter- and
intermediate-duration bonds over the past several years, the level of
income produced by the fund's holdings has declined. In February 2003,
the fund lowered its distribution rate from $0.045 per share to $0.038
per share.
The fund's management team
This fund is managed by the Putnam Core Fixed-Income Team. The members
of this team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, Michael Salm, and John Van Tassel.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We anticipate continued interest-rate volatility in the coming months as
investors come to terms with two different economic scenarios. The first
is a continuation of the cyclical recovery from recession, which has
been stimulated by tax cuts, low interest rates, and increased capital
spending among corporations, as well as signs of growth in Asia. These
trends, if they continue, could lead to faster growth and potentially
higher inflation. Higher inflation, in turn, could lead to higher
interest rates, which would hurt your fund's performance. In the second
scenario, certain structural "headwinds" could dampen growth. These
inhibitors may include lower-than-expected corporate profits, a decline
in consumer spending, a lack of new job creation, and a dearth of
much-needed corporate capital spending. A positive effect of slower
growth would be lower inflation and lower interest rates, which would be
positive for the bond market and for your fund.
The conflict between stimulating and inhibiting forces on the economy
may produce higher volatility in the bond market in the months ahead,
but we believe that your fund's holdings, which are well diversified and
generally less sensitive to interest-rate movements than Treasuries,
should continue to perform as the economy sorts itself out. Since the
fund is so well diversified, certain sectors and holdings in the
portfolio have the potential to benefit from either faster or slower
growth. For example, the fund's emphasis on a shorter portfolio
duration, which is designed to reduce sensitivity to interest-rate
changes, may help mitigate the negative impact of rising interest rates,
while the fund's high-yield bond holdings should benefit from continued
strength in the economy.
We would like to caution shareholders that the strong returns of the
past year are well above the historical average for a fund of this type,
and that this strong performance is not likely to be repeated. That
being said, we believe that for those seeking income, investing in a
well-diversified fund such as this one remains a sensible approach.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Additional risks may
be associated with emerging markets securities, including illiquidity
and volatility. Lower-rated bonds may offer higher yields in return for
more risk. Mutual funds that invest in government securities are not
guaranteed. Mortgage-backed securities are subject to prepayment risk.
Performance summary
This section provides information about your fund's performance during
its fiscal year, which ended September 30, 2003. Performance should
always be considered in light of a fund's investment strategy. Past
performance does not indicate future results. More recent returns may be
less or more than those shown. Investment return, net asset value, and
market price will fluctuate and you may have a gain or a loss when you
sell your shares. A profile of your fund's strategy appears on the first
page of this report. See page 8 for definitions of some terms used in
this section.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03
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NAV Market price
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1 year 20.42% 8.35%
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5 years 33.98 29.04
Annual average 6.02 5.23
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10 years 86.65 82.09
Annual average 6.44 6.18
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Life of fund
(since 4/29/88)
Annual average 7.92 6.81
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/03
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Lehman Citigroup JP Morgan Lipper Flexible
Govt. Non-U.S. Global CSFB Income Funds
Credit World Govt. High Yield High Yield (closed-end)
Index Bond Index Index+ Index category average*
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1 year 6.51% 17.80% 27.18% 28.05% 21.85%
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5 years 38.24 27.17 29.84 32.62 31.51
Annual average 6.69 4.92 5.36 5.81 5.29
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10 years 95.82 80.00 -- 99.52 78.39
Annual average 6.95 6.05 -- 7.15 5.90
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Life of fund
(since 4/29/88)
Annual average 8.50 7.02 -- 9.09 8.06
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 9/30/03, there were 12, 12,
and 9 funds, respectively, in this Lipper category.
+ This comparative index replaced the CSFB High Yield Index on 12/30/02
because, in Putnam Management's opinion, the securities tracked by this
index more accurately reflect the types of securities generally held by
the fund. The JP Morgan Global High Yield Index's inception date was
12/31/93.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/03
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Distributions (number) 12
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Income $0.484
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Capital gains --
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Total $0.484
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Share value: NAV Market price
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9/30/02 $6.26 $6.38
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9/30/03 6.99 6.41
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Current return (end of period)
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Current dividend rate 1 6.52% 7.11%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
Comparative indexes
Citigroup (formerly Salomon Smith Barney) Non-U.S. World Government Bond
Index is an unmanaged index of government bonds from 10 countries.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
JP Morgan Global Diversified Emerging Markets Index is an unmanaged
index of global emerging markets fixed-income securities.
Lehman Government Credit Index is an unmanaged index of U.S fixed-income
securities.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam Master Intermediate Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Master Intermediate Income Trust, including the fund's portfolio,
as of September 30, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of
the two years in the period then ended and the financial highlights for
each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of September 30, 2003 by correspondence with the custodian and brokers
or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Master Intermediate Income Trust as of
September 30, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
November 17, 2003
The fund's portfolio
September 30, 2003
Corporate bonds and notes (51.1%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$238,719 Adams Outdoor Advertising bank term
loan FRN 4.5844s, 2008 (acquired
4/2/03, cost $238,121) (RES) $239,117
200,000 Lamar Media Corp. bank term loan FRN
Ser. B, 3.4375s, 2010 (acquired
2/27/03, cost $200,000) (RES) 201,250
560,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 585,200
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1,025,567
Automotive (1.0%)
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1,020,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 887,400
160,000 Dana Corp. notes 10 1/8s, 2010 178,800
675,000 Dana Corp. notes 9s, 2011 739,125
EUR 50,000 Dana Corp. notes 9s, 2011 61,126
$295,000 Dana Corp. notes 6 1/2s, 2009 295,000
360,000 Dana Corp. notes 6 1/4s, 2004 363,600
160,000 Delco Remy International, Inc.
company guaranty 11s, 2009 145,600
390,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 369,525
420,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 390,600
180,000 Hayes Lemmerz International, Inc.
bank term loan FRN 5.9267s,
2009 (acquired 6/3/03, cost
$178,200) (RES) 181,406
805,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 925,750
EUR 215,000 Lear Corp. sr. notes 8 1/8s, 2008 282,867
$113,361 SPX Corp. bank term loan FRN Ser. B,
3.375s, 2009 (acquired 7/23/02,
cost $42,524) (RES) 114,034
EUR 300,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 354,540
$485,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 477,725
750,000 Tenneco Automotive, Inc. 144A sec.
notes 10 1/4s, 2013 813,750
150,000 TRW Automotive bank term loan FRN
Ser. C-1, 4.13s, 2011 (acquired
7/21/03, cost $150,000) (RES) 150,703
--------------
6,731,551
Basic Materials (5.4%)
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10,000 Abitibi-Consolidated Finance LP
company guaranty 7 7/8s, 2009 10,741
960,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 1,063,200
145,000 Acetex Corp. 144A sr. notes 10 7/8s,
2009 (Canada) 160,588
1,060,000 AK Steel Corp. company guaranty
7 3/4s, 2012 731,400
154,144 Appleton Papers, Inc. bank term loan
FRN Ser. C, 4.3764s, 2006 (acquired
6/4/02, cost $154,722) (RES) 154,658
785,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 859,575
780,000 Armco, Inc. sr. notes 9s, 2007 561,600
85,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 74,375
575,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 370,875
530,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 583,000
1,041,866 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(acquired various dates from 7/27/01
to 5/27/03, cost $554,349) (RES) (PIK) 416,746
765,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 813,565
195,000 Equistar Chemical notes 6 1/2s, 2006 184,275
185,000 Equistar Chemicals LP notes 8 3/4s, 2009 172,975
1,690,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s,2008 1,681,550
390,000 Equistar Chemicals LP/Equistar
Funding Corp. 144A sr. notes
10 5/8s, 2011 386,100
985,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 1,078,575
505,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 559,288
451,000 Georgia-Pacific Corp. 144A sr. notes
7 3/8s, 2008 465,094
545,000 Gerdau Ameristeel Corp/Gusap
Partners 144A sr. notes 10 3/8s,
2011 (Canada) 547,725
150,000 Graphics Packaging bank term loan
FRN 3.86s, 2010 (acquired 8/6/03,
cost $150,000) (RES) 150,713
198,500 Hercules, Inc. bank term loan FRN
Ser. B, 4.3681s, 2007 (acquired
12/17/02, cost $198,004) (RES) 198,996
2,140,000 Hercules, Inc. company guaranty
11 1/8s, 2007 2,477,050
485,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 504,400
567,004 Huntsman Corp. bank term loan FRN
Ser. A, 5.9508s, 2007 (acquired
various dates from 6/10/02 to
9/24/03, cost $504,775) (RES) 518,337
301,555 Huntsman Corp. bank term loan FRN
Ser. B, 8.4375s, 2007 (acquired
various dates from 6/10/02 to
9/24/03, cost $269,037) (RES) 275,672
1,030,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 973,350
1,375,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 543,125
EUR 415,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 420,371
$265,000 Huntsman LLC 144A sec. notes
11 5/8s, 2010 261,025
240,000 IMC Global, Inc. company guaranty
Ser. B, 11 1/4s, 2011 249,600
395,000 IMC Global, Inc. company guaranty
Ser. B, 10 7/8s, 2008 410,800
1,385,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,544,275
275,000 ISP Holdings, Inc. sec. sr. notes
Ser. B, 10 5/8s, 2009 298,375
60,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 46,200
1,685,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) 134,800
400,000 Louisiana-Pacific Corp. sr. notes
8 7/8s, 2010 465,000
335,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 329,975
135,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 125,550
5,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 4,625
1,370,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 1,301,500
EUR 800,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 1,017,598
$85,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 93,075
330,502 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 364,378
EUR 210,000 Messer Griesheim Holdings AG sr.
notes 10 3/8s, 2011 (Germany) 280,200
$980,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 1,016,750
10,000 Millennium America, Inc. company
guaranty 7s, 2006 9,750
190,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 197,125
500,000 Noveon International bonds 13s, 2011 515,000
460,000 Noveon International company
guaranty Ser. B, 11s, 2011 519,800
935,000 OM Group, Inc. company guaranty
9 1/4s, 2011 920,975
900,000 Pacifica Papers, Inc. sr. notes 10s,
2009 (Canada) 954,000
509,465 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 441,961
243,657 Pioneer Cos., Inc. sec. FRN 4.64s, 2006 211,372
805,000 Potlatch Corp. company guaranty 10s, 2011 893,550
505,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 517,625
295,000 Rhodia SA 144A sr. sub. notes
8 7/8s, 2011 (France) 289,100
310,000 Royster-Clark, Inc. 1st mtge.
10 1/4s, 2009 241,800
285,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s,
6/1/06), 2013 (STP) 171,000
775,000 Salt Holdings Corp. 144A sr. notes
stepped-coupon zero % (12 3/4s,
12/15/07), 2012 (STP) 542,500
80,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 83,600
850,000 Solutia, Inc. company guaranty
11 1/4s, 2009 824,500
885,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 946,950
137,417 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 129,172
930,000 Stone Container Corp. sr. notes
9 3/4s, 2011 1,009,050
350,000 Stone Container Corp. sr. notes
9 1/4s, 2008 380,625
800,000 Stone Container Corp. sr. notes
8 3/8s, 2012 840,000
300,000 Tembec Industries, Inc. company
guaranty 8 1/2s, 2011 (Canada) 292,500
80,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 75,200
50,000 Texas Petrochemical Corp. sr. sub.
notes 11 1/8s, 2006 (In default) (NON) 14,000
200,000 Texas Petrochemical Corp. sr. sub.
notes Ser. B, 11 1/8s, 2006 (In
default) (NON) 56,000
745,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 813,913
605,000 United States Steel Corp. sr. notes
9 3/4s, 2010 620,125
510,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 153,000
38,500 Weirton Steel Corp. sr. notes 10s,
2008 (In default) (NON) 5,775
780,000 Wheeling-Pittsburgh Steel Corp. sr.
notes 9 1/4s, 2007 (In default) (NON) 85,800
410,000 WHX Corp. sr. notes 10 1/2s, 2005 352,600
--------------
37,990,013
Building Materials (0.6%)
-------------------------------------------------------------------------------
1,075,000 American Standard Cos., Inc. company
guaranty 7 5/8s, 2010 1,198,625
270,000 Atrium Cos., Inc. company guaranty
Ser. B, 10 1/2s, 2009 288,900
320,000 Building Materials Corp. company
guaranty 8s, 2008 320,000
775,000 Dayton Superior Corp. 144A sec.
notes 10 3/4s, 2008 794,375
190,000 NCI Building Systems, Inc. bank term
loan FRN Ser. B, 4.35s,
2008 (acquired 9/4/02, cost
$190,000) (RES) 190,871
450,000 Nortek, Inc. sr. notes Ser. B,
8 7/8s, 2008 465,750
90,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 94,725
330,000 Nortek, Inc. 144A sr. notes Ser. B,
9 1/8s, 2007 339,900
1,510,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 681,388
--------------
4,374,534
Capital Goods (5.0%)
-------------------------------------------------------------------------------
250,000 Advanced Glass Fiber Yarns bank term
loan FRN Ser. A, 6 1/2s,
2004 (acquired 9/12/02, cost
$175,000) (RES) 150,000
230,000 Advanced Glass Fiber Yarns sr. sub.
notes 9 7/8s, 2009 (In default) (NON) 2,300
830,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 815,475
209,084 Alliant Techsystems, Inc. bank term
loan FRN Ser. C, 3.4924s, 2009 (acquired
5/7/02, cost $209,084) (RES) 210,260
154,286 Allied Waste Industries, Inc. bank
term loan FRN 4.3927s, 2010 (acquired
4/25/03, cost $154,286) (RES) 155,760
25,714 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 4.393s, 2010
(acquired 4/25/03, cost $25,714) (RES) 25,939
1,430,000 Allied Waste North America, Inc.
company guaranty Ser. B, 9 1/4s, 2012 1,580,150
480,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 7/8s, 2008 519,600
1,175,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s, 2008 1,263,125
20,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s, 2006 20,900
330,000 Allied Waste North America, Inc.
144A Structured Notes 8.2s, 2006 (issued
by Credit and Repackaged Securities, Ltd.)
(Cayman Islands) 350,559
200,000 Amsted Industries bank term loan FRN
5.12s, 2010 (acquired 8/12/03, cost
$199,000) (RES) 200,583
1,320,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 1,280,400
200,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 194,000
500,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 455,000
135,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 116,775
670,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 584,575
290,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 324,075
945,000 Blount, Inc. company guaranty 13s, 2009 841,050
945,000 Blount, Inc. company guaranty 7s, 2005 926,100
555,000 Briggs & Stratton company guaranty
8 7/8s, 2011 621,600
270,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 262,238
EUR 575,000 BSN Financing Co. SA company
guaranty Ser. EUR, 10 1/4s,
2009 (Luxembourg) 684,536
EUR 340,000 BSN Glasspack 144A sec. notes
9 1/4s, 2009 (France) 403,779
$200,000 Crown Cork & Seal Company, Inc. bank
term loan FRN Ser. B, 4.14s,
2008 (acquired 2/21/03, cost
$198,000) (RES) 201,450
535,000 Crown Holdings SA 144A sec. notes
10 7/8s, 2013 (France) 589,838
1,760,000 Crown Holdings SA 144A sec. notes
9 1/2s, 2011 (France) 1,892,000
1,000,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 450,000
149,625 EaglePicher bank term loan FRN
4.64s, 2009 (acquired 8/6/03, cost
$150,500) (RES) 150,685
715,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 761,475
930,000 FIMEP SA sr. notes 10 1/2s, 2013 (France) 1,050,900
EUR 360,000 Flender Holdings 144A notes 11s, 2010 452,680
$92,942 Flowserve Corp. bank term loan FRN
Ser. C, 3.911s, 2009 (acquired
4/30/02, cost $92,942) (RES) 93,482
555,000 Flowserve Corp. company guaranty
12 1/4s, 2010 635,475
EUR 95,000 Flowserve Finance BV company
guaranty 12 1/4s, 2010 (Netherlands) 124,158
$95,000 Fonda Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 76,950
199,649 Graham Packaging bank term loan FRN
5.1055s, 2010 (acquired 2/18/03,
cost $198,651) (RES) 200,448
665,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 694,925
460,000 Insilco Holding Co. sr. disc. notes
zero %, 2008 (In default) (NON) 2,300
EUR 275,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 310,577
$420,000 Jordan Industries, Inc. sr. notes
Ser. D, 10 3/8s, 2007 189,000
375,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 412,500
239,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 246,368
330,000 L-3 Communications Corp. company
guaranty Ser. B, 8s, 2008 342,375
140,000 L-3 Communications Corp. 144A
Structured Notes 8 1/2s, 2006
(Issued by Credit and Repackaged
Securities, Ltd.) (Cayman Islands) 157,046
176,400 Laidlaw International, Inc. bank
term loan FRN 7s, 2009 (acquired
6/18/03, cost $172,872) (RES) 177,282
740,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 793,650
305,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 342,363
EUR 190,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 237,919
$394,876 Michigan Electric Transmission
Co./Michigan Electric Transmission,
Inc. bank term loan FRN Ser. B,
3.6s, 2007 (acquired various dates
from 4/22/02 to 5/3/02, cost
$554,101) (RES) 396,192
925,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 721,500
880,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 937,200
560,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 571,200
520,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 538,200
685,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 734,663
95,000 Pliant Corp. company guaranty 13s, 2010 88,350
515,000 Pliant Corp. 144A sec. notes
11 1/8s, 2009 553,625
585,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s, 2007 538,200
1,140,000 Sequa Corp. sr. notes 9s, 2009 1,242,600
240,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 259,200
430,000 Siebe PLC 144A notes 7 1/8s, 2007
(United Kingdom) 422,475
205,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 188,088
535,000 Sweetheart Cup Co. company guaranty
12s, 2004 522,963
430,000 TD Funding Corp. 144A sr. sub. notes
8 3/8s, 2011 462,250
1,245,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 1,220,100
75,000 Terex Corp. company guaranty 8 7/8s, 2008 78,188
730,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 819,425
130,000 Terex Corp. company guaranty Ser. D,
8 7/8s, 2008 136,175
296,256 Titan Corp. (The) bank term loan FRN
Ser. B, 4.4346s, 2009 (acquired
various dates from 5/14/02 to
6/3/02, cost $297,385) (RES) 296,564
370,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 432,900
50,000 Transdigm, Inc. bank term loan FRN
4.13s, 2010 (acquired 7/21/03, cost
$50,000) (RES) 50,458
660,000 Trimas Corp. company guaranty
9 7/8s, 2012 669,900
365,000 Vought Aircraft Industries Inc. 144A
sr. notes 8s, 2011 372,300
--------------
34,827,341
Commercial and Consumer Services (0.3%)
-------------------------------------------------------------------------------
143,242 Coinmach Corp. bank term loan FRN
Ser. B, 4.0327s, 2009 (acquired
1/31/02, cost $143,063) (RES) 143,749
1,190,000 Coinmach Corp. sr. notes 9s, 2010 1,267,350
49,875 Corrections Corporation of America
bank term loan FRN 3.88s, 2008 (acquired
8/5/03, cost $49,875) (RES) 50,187
441,621 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 24,289
DEM 1,265,879 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 41,447
$645,000 IESI Corp. company guaranty 10 1/4s, 2012 699,825
90,000 Worldspan bank term loan FRN 4 7/8s,
2007 (acquired 6/30/03, cost
$89,100) (RES) 90,281
--------------
2,317,128
Communication Services (4.9%)
-------------------------------------------------------------------------------
1,440,000 ACC Escrow Corp. 144A sr. notes 10s, 2011 1,548,000
420,000 Airgate PCS, Inc. sr. sub. notes
stepped-coupon zero % (13 1/2s,
10/1/04), 2009 (STP) 319,200
640,000 Alamosa Delaware, Inc. company
guaranty 13 5/8s, 2011 627,200
280,000 Alamosa Delaware, Inc. company
guaranty 12 1/2s, 2011 270,200
3,000 Alamosa PCS Holdings, Inc. company
guaranty stepped-coupon zero %
(12 7/8s, 2/15/05), 2010 (STP) 2,370
295,000 American Tower Corp. sr. notes
9 3/8s, 2009 300,900
550,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default) (NON) 82,500
1,870,000 Centennial Cellular Operating Co.
144A sr. notes 10 1/8s, 2013 1,926,100
1,015,000 Cincinnati Bell, Inc. 144A company
guaranty 7 1/4s, 2013 1,004,850
756,908 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 1,892
55,000 Colt Telecommunications Group PLC
sr. disc. notes 12s, 2006 (United
Kingdom) 55,138
GBP 220,000 Colt Telecommunications Group PLC
sr. notes 10 1/8s, 2007 (United Kingdom) 361,831
EUR 110,000 Colt Telecommunications Group PLC
sr. notes 7 5/8s, 2009 (United Kingdom) 115,906
$580,000 Crown Castle International Corp. sr.
disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 582,900
765,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 816,638
90,000 Crown Castle International Corp. sr.
notes 9s, 2011 92,925
1,100,000 Dobson Communications Corp. 144A sr.
notes 8 7/8s, 2013 1,105,500
940,000 Dobson/Sygnet Communications, Inc.
sr. notes 12 1/4s, 2008 1,008,150
265,000 Eircom Funding 144A sr. sub. notes
8 1/4s, 2013 (Ireland) 284,875
390,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 415,350
80,000 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 8
328,078 Globix Corp. company guaranty 11s,
2008 (PIK) 249,339
160,000 Horizon PCS, Inc. company guaranty
13 3/4s, 2011 (In default) (NON) 36,800
60,000 Intermedia Communications, Inc. sr.
notes Ser. B, 8.6s, 2008 (In
default) (NON) 50,100
910,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s, 7/15/05),
2010 (In default) (NON) (STP) 100,100
506,000 IWO Holdings, Inc. company guaranty
14s, 2011 83,490
85,000 Level 3 Communications, Inc. sr.
notes 9 1/8s, 2008 72,250
1,500,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 1,496,250
725,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 761,250
530,000 Metromedia Fiber Network, Inc. sr.
notes 10s, 2009 (In default) (NON) 38,425
570,000 Metromedia Fiber Network, Inc. sr.
notes Ser. B, 10s, 2008 (In default) (NON) 41,325
774,000 Millicom International Cellular SA
144A sr. notes 11s, 2006 (Luxembourg) 791,415
123,750 Nextel Communications, Inc. bank
term loan FRN Ser. B, 4.5671s,
2008 (acquired 12/19/02, cost
$114,468) (RES) 124,169
123,750 Nextel Communications, Inc. bank
term loan FRN Ser. C, 4.8171s,
2008 (acquired 12/19/02, cost
$114,468) (RES) 124,169
8,000 Nextel Communications, Inc. sr.
disc. notes 9.95s, 2008 8,420
930,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 1,027,650
1,000,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 1,085,000
625,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 631,250
385,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 439,863
550,000 Nextel Partners, Inc. sr. notes 11s, 2010 600,875
1,315,000 Nextel Partners, Inc. 144A sr. notes
8 1/8s, 2011 1,282,125
620,000 Orbital Imaging Corp. sr. notes
Ser. B, 11 5/8s, 2005 (In default) (NON) 303,800
318,500 PanAmSat Corp. bank term loan FRN
Ser. B, 4.62s, 2009 (acquired
2/21/02, cost $318,102) (RES) 319,637
830,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 869,425
195,000 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s, 2007
(acquired 6/5/03, cost $193,050) (RES) 198,803
2,055,000 Qwest Corp. 144A notes 8 7/8s, 2012 2,281,050
2,611,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 3,041,815
50,000 Rogers Cantel, Ltd. debs. 9 3/8s,
2008 (Canada) 52,375
770,000 Rogers Cantel, Ltd. sr. sub. notes
8.8s, 2007 (Canada) 789,250
280,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 321,650
270,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 245,700
1,545,000 Telus Corp. notes 8s, 2011 (Canada) 1,803,643
198,500 Time Warner Telecom, Inc. bank term
loan FRN Ser. B, 5.1s, 2009 (acquired
1/15/03, cost $173,688) (RES) 197,756
510,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s, 2009 512,550
390,000 U S West, Inc. notes 5 5/8s, 2008 380,250
417,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 283,560
1,210,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 883,300
405,000 US West Capital Funding, Inc.
company guaranty 6 1/4s, 2005 396,900
1,080,000 Western Wireless Corp. 144A sr.
notes 9 1/4s, 2013 1,101,600
10,000 Williams Communications Group, Inc.
notes zero %, 2010 (In default) (NON) 1
220,000 Williams Communications Group, Inc.
notes zero %, 2008 (In default) (NON) 2
200,000 Williams Communications Group, Inc.
notes zero %, 2007 (In default) (NON) 2
--------------
33,949,767
Conglomerates (0.3%)
-------------------------------------------------------------------------------
365,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 385,075
55,000 Tyco International Group SA company
guaranty 6 3/8s, 2006 (Luxembourg) 57,613
225,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 234,000
1,670,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 1,722,188
--------------
2,398,876
Consumer (0.5%)
-------------------------------------------------------------------------------
1,055,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 1,128,850
200,000 Jostens, Inc. bank term loan FRN
Ser. B, 3.64s, 2010 (acquired
7/28/03, cost $200,000) (RES) 201,325
510,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 591,600
1,681,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 1,756,645
--------------
3,678,420
Consumer Staples (7.8%)
-------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. notes (NON) 27,600
215,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default) (NON) 150,500
50,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default) (NON) 35,750
341,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 237,848
580,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 406,000
EUR 260,000 Ahold Finance USA eurobonds 6 3/8s, 2005 303,626
$660,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 719,400
700,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 735,000
450,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2009 466,313
445,065 American Seafood Group, LLC bank
term loan FRN Ser. B, 4.36s,
2009 (acquired 4/11/02, cost
$444,620) (RES) 445,714
196,349 AMF Bowling Worldwide bank term loan
FRN Ser. B, 5.4521s, 2008 (acquired
3/1/02, cost $195,858) (RES) 196,921
342,227 Archibald Candy Corp. company
guaranty 10s, 2007 (PIK) 130,046
635,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 700,088
140,000 Aurora Foods, Inc. sr. sub. notes
Ser. B, 9 7/8s, 2007 (In default) (NON) 79,800
415,000 Aurora Foods, Inc. 144A sr. sub.
notes Ser. D, 9 7/8s, 2007 (In
default) (NON) 236,550
10,263 Australis Media, Ltd. sr. disc.
notes 15 3/4s, 2003 (Australia) (In
default) (DEF) (NON) 1
565,000 Brand Services, Inc. company
guaranty 12s, 2012 627,150
655,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 668,100
171,923 Carmike Cinemas, Inc. bank term loan
FRN Ser. B, 7 3/4s, 2005 (acquired
10/4/02, cost $167,625) (RES) 172,782
900,000 Century Cable Holdings bank term
loan FRN 6s, 2009 6/5/02 and
6/11/02, cost $749,082) (RES) 775,286
158,791 Charter Communications Holdings, LLC
bank term loan FRN Ser. B, 3.86s,
2008 (acquired 1/9/03, cost
$137,950) (RES) 150,216
100,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 51,500
525,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 288,750
415,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 280,125
1,595,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 1,303,913
860,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 703,050
420,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 327,600
1,560,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s, 2011 1,177,800
745,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s, 2009 575,513
375,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s, 2009 286,875
30,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 1/4s, 2007 25,500
650,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 693,875
1,600,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 1,660,000
150,000 Constellation Brands, Inc. company
guaranty 8 1/2s, 2009 158,250
305,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 330,925
425,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 456,875
156,758 Constellation Energy Group, Inc.
bank term loan FRN Ser. B,
3 7/8s, 2008 (acquired 3/20/03, cost
$156,758) (RES) 157,972
570,000 Cott Beverages USA, Inc. company
guaranty 8s, 2011 612,750
150,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 153,375
170,000 Dean Foods Co. sr. notes 6 5/8s, 2009 177,650
210,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 231,000
560,000 Del Monte Corp. 144A sr. sub. notes
8 5/8s, 2012 611,800
230,878 Del Monte Foods Co. bank term loan
FRN Ser. B, 4.8581s, 2010 (acquired
12/16/02, cost $229,724) (RES) 233,379
180,000 DirecTV bank term loan FRN Ser. B,
4.0039s, 2010 (acquired 3/4/03 and
8/5/03, cost $180,000) (RES) 180,698
2,742,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default) (NON) 219,360
1,370,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,301,500
27,391 Dole Food Co. bank term loan FRN
Ser. B, 5.0875s, 2008 (acquired
3/28/03, cost $27,391) (RES) 27,563
260,000 Dole Food Co. sr. notes 8 7/8s, 2011 276,900
200,000 Dole Food Co. sr. notes 7 1/4s, 2009 213,000
665,000 Domino's, Inc. 144A sr. sub. notes
8 1/4s, 2011 702,406
380,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 250,800
1,015,000 Echostar DBS Corp. sr. notes
10 3/8s, 2007 1,127,919
1,509,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 1,707,056
1,660,000 Echostar DBS Corp. 144A sr. notes
6 3/8s, 2011 1,651,700
125,000 Echostar DBS Corp. 144A sr. notes
FRN 4.41s, 2008 127,813
95,000 Elizabeth Arden, Inc. sec. notes
Ser. B, 11 3/4s, 2011 108,300
198,000 Emmis Communications Corp. bank term
loan FRN Ser. C, 3 3/8s,
2009 (acquired 6/20/02, cost
$197,753) (RES) 198,935
235,000 Emmis Communications Corp. company
guaranty Ser. B, 8 1/8s, 2009 244,988
61,000 Emmis Communications Corp. sr. disc.
notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 54,290
625,000 Fleming Cos., Inc. company guaranty
10 1/8s, 2008 (In default) (NON) 103,125
515,000 Fleming Cos., Inc. sr. notes 9 1/4s,
2010 (In default) (NON) 73,388
124,000 French Fragrances, Inc. company
guaranty Ser. D, 10 3/8s, 2007 128,960
265,000 French Fragrances, Inc. sr. notes
Ser. B, 10 3/8s, 2007 276,263
45,000 Granite Broadcasting Corp. sr. sub.
notes 10 3/8s, 2005 44,325
610,000 Granite Broadcasting Corp. sr. sub.
notes 9 3/8s, 2005 592,463
820,000 Granite Broadcasting Corp. sr. sub.
notes 8 7/8s, 2008 788,225
415,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 457,538
70,000 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN
3.9375s, 2009 (acquired 1/9/01, cost
$69,895) (RES) 70,011
37,590 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 35,898
585,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 485,550
250,000 LIN Television Corp. company
guaranty 8s, 2008 268,750
300,000 MGM Studios bank term loan FRN
Ser. B, 4.1s, 2008 (acquired
6/10/02, cost $300,000) (RES) 300,656
910,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,190,564
61,486 Nexstar Broadcasting bank term loan
FRN Ser. B, 4.12s, 2011 (acquired
2/5/03, cost $61,486) (RES) 61,717
26,014 Nexstar Mission Broadcasting bank
term loan FRN 4.12s, 2011 (acquired
2/5/03, cost $26,014) (RES) 26,112
1,115,000 North Atlantic Trading Co. company
guaranty Ser. B, 11s, 2004 1,064,825
500,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 6/20/02,
cost $435,750) (RES) 444,659
220,000 ONO Finance PLC sr. notes 14s, 2011
(United Kingdom) 201,025
100,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 90,125
15,000 Pegasus Communications Corp. sr.
notes 12 1/2s, 2007 12,000
60,000 Pegasus Communications Corp. sr.
notes Ser. B, 9 3/4s, 2006 47,400
400,000 Pegasus Satellite sr. notes 12 3/8s, 2006 320,000
197,000 Playtex Products, Inc. bank term
loan FRN Ser. C, 4.6164s, 2009 (acquired
6/3/02, cost $197,000) (RES) 196,508
1,595,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 1,531,200
480,000 Polaroid Corp. sr. notes 11 1/2s,
2006 (In default) (NON) 97,200
650,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 711,750
1,000,000 Premier Parks, Inc. sr. notes 10s, 2007 982,500
1,050,000 Premium Standard Farms, Inc. sr.
notes 9 1/4s, 2011 1,050,000
1,896,149 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s,
5/15/06), 2009 (STP) 1,403,719
133,500 Rayovac Corp. bank term loan FRN
Ser. B, 4.8748s, 2009 (acquired
9/26/02, cost $133,367) (RES) 133,778
352,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 160,160
400,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 450,000
700,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 717,500
465,000 Revlon Consumer Products sr. notes
9s, 2006 325,500
360,000 Revlon Consumer Products sr. notes
8 1/8s, 2006 248,400
GBP 100,000 RHM Finance, Ltd. bonds
stepped-coupon Ser. B1, 11 1/2s
(17 1/4s, 2/28/11), 2011 (Cayman
Islands) (STP) 141,211
$120,000 Rite Aid Corp. bank term loan FRN
4.12s, 2008 (acquired 5/16/03, cost
$119,850) (RES) 121,400
560,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 632,800
115,000 Rite Aid Corp. 144A notes 6s, 2005 115,575
675,000 Rite Aid Corp. 144A sr. notes
9 1/4s, 2013 715,500
380,000 Rite Aid Corp. 144A sr. sec. notes
8 1/8s, 2010 404,700
550,000 Rogers Cablesystems, Ltd. sr. notes
Ser. B, 10s, 2005 (Canada) 589,875
246,256 Roundy's, Inc. bank term loan FRN
3.6362s, 2009 (acquired 6/3/02,
cost $246,256) (RES) 246,872
820,000 Sbarro, Inc. company guaranty 11s, 2009 709,300
470,000 Scotts Co. (The) company guaranty
8 5/8s, 2009 495,850
282,113 Shoppers Drug Mart bank term loan
FRN Ser. F, 3.163s, 2009
(acquired various dates from 5/22/02
to 5/29/02, cost $283,363) (RES) 282,340
340,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 369,750
375,000 Sinclair Broadcast Group, Inc.
company guaranty 8s, 2012 395,625
93,750 Six Flags, Inc. bank term loan FRN
Ser. B, 3.37s, 2009 (acquired
1/15/03, cost $93,633) (RES) 93,382
1,600,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 1,472,000
1,270,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 619,125
260,000 TeleWest Communications PLC debs.
9 5/8s, 2006 (United Kingdom) (In
default) (NON) 122,200
200,000 TeleWest Communications PLC sr.
notes Ser. S, 9 7/8s, 2010 (United
Kingdom) (In default) (NON) 91,000
80,000 TeleWest Communications PLC 144A sr.
notes 11 1/4s, 2008 (United Kingdom)
(In default) (NON) 38,400
60,000 TM Group Holdings sr. notes 11s,
2008 (United Kingdom) 63,300
290,000 United Rentals (North America), Inc.
company guaranty Ser. B, 10 3/4s, 2008 321,900
120,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.8677s, 2008 (acquired
6/23/03, cost $120,000) (France) (RES) 120,600
770,000 Vivendi Universal SA 144A notes
6 1/4s, 2008 (France) 793,100
455,000 Vivendi Universal SA 144A sr. notes
9 1/4s, 2010 (France) 522,681
680,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 669,800
1,421,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 1,506,260
82,000 Young Broadcasting, Inc. company
guaranty Ser. B, 8 3/4s, 2007 83,230
60,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 69,900
265,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 294,150
1,060,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 1,171,300
--------------
54,521,316
Energy (4.6%)
-------------------------------------------------------------------------------
710,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 731,300
690,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 652,050
640,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 681,600
340,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 382,500
215,000 Chesapeake Energy Corp. company
guaranty 8 3/8s, 2008 233,275
115,000 Chesapeake Energy Corp. company
guaranty 8 1/8s, 2011 124,775
155,000 Chesapeake Energy Corp. sr. notes
Ser. B, 8 1/2s, 2012 164,300
1,135,000 Chesapeake Energy Corp. 144A sr.
notes 7 1/2s, 2013 1,191,750
875,000 Comstock Resources, Inc. company
guaranty 11 1/4s, 2007 949,375
695,000 Dresser, Inc. company guaranty
9 3/8s, 2011 728,013
215,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 231,663
545,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 572,250
200,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 206,500
300,000 Forest Oil Corp. sr. notes 8s, 2011 318,000
335,000 Forest Oil Corp. sr. notes 8s, 2008 355,100
430,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 471,925
295,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 294,263
80,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 86,800
700,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 745,500
2,950,000 OAO Gazprom 144A notes 9 5/8s, 2013 (Russia) 3,156,500
500,000 OAO Gazprom notes Ser. REGS, 9 5/8s,
2013 (Russia) 535,000
470,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 448,850
540,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 550,800
89,550 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.6356s, 2010 (acquired
3/20/03, cost $89,550) (RES) 90,166
2,750,000 Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 3,117,950
2,170,000 Petronas Capital, Ltd. 144A company
guaranty 7s, 2012 (Malaysia) 2,460,346
2,260,000 Pioneer Natural Resources Co.
company guaranty 9 5/8s, 2010 2,813,700
115,000 Pioneer Natural Resources Co.
company guaranty 6 1/2s, 2008 124,488
380,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 412,300
485,000 Plains Exploration & Production Co.
144A sr. sub. notes 8 3/4s, 2012 518,950
670,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 728,625
425,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 437,750
600,000 Seabulk International, Inc. 144A sr.
notes 9 1/2s, 2013 602,250
270,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default) (NON) 29,700
745,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 793,425
364,615 Star Gas Propane 1st Mtge. 8.04s, 2009 359,146
710,000 Stone Energy Corp. sr. sub. notes
8 1/4s, 2011 752,600
330,000 Swift Energy Co. sr. sub. notes
10 1/4s, 2009 349,800
470,000 Swift Energy Co. sr. sub. notes
9 3/8s, 2012 505,250
360,000 Tesoro Petroleum Corp. sec. notes
8s, 2008 369,000
740,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 540,200
150,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 154,500
670,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 720,250
405,000 Vintage Petroleum, Inc. sr. sub.
notes 9 3/4s, 2009 431,325
145,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 149,350
120,000 Weg Acquisition bank term loan FRN
5.61s, 2008 (acquired 6/13/03, cost
$118,800) (RES) 120,900
925,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 1,010,563
280,000 Westport Resources Corp. 144A
company guaranty 8 1/4s, 2011 305,900
500,000 XCL, Ltd. 144A company guaranty
13 1/2s, 2004 (In default) (NON) 150,000
390,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 431,925
230,000 XTO Energy, Inc. sr. notes 6 1/4s, 2013 238,050
--------------
32,530,498
Financial (1.4%)
-------------------------------------------------------------------------------
460,000 Chevy Chase Savings Bank, Inc. sub.
debs. 9 1/4s, 2005 462,300
790,000 Conseco, Inc. 144A notes zero %,
2009 (In default) (NON) 1
120,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 122,400
765,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 822,375
2,192,000 Finova Group, Inc. notes 7 1/2s, 2009 1,085,040
219,612 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3 7/8s,
2007 (acquired 6/20/02, cost
$219,612) (RES) 221,534
177,975 Infinity Inc. bank term loan FRN
3.61s, 2010 (acquired 7/2/03, cost
$177,975) (RES) 179,013
840,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 938,700
125,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 133,750
1,831,500 JP Morgan HY disc. notes 8s, 2008 1,858,973
258,000 Nationwide Credit, Inc. sr. notes
Ser. A, 10 1/4s, 2008 (In default) (NON) 3
112,000 Ocwen Financial Corp. notes 11 7/8s, 2003 112,000
770,000 Resource America, Inc. 144A sr.
notes 12s, 2004 777,700
2,065,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 2,458,079
540,000 Western Financial Bank sub. debs.
9 5/8s, 2012 584,550
--------------
9,756,418
Gaming & Lottery (2.9%)
-------------------------------------------------------------------------------
500,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 568,750
590,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 646,050
160,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 174,000
165,000 Borgata Resorts bank term loan FRN
Ser. B, 5.1793s, 2007 (acquired
6/5/02, cost $164,588) (RES) 165,928
750,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 811,875
370,000 Chumash Casino & Resort Enterprise
144A sr. notes 9 1/4s, 2010 397,750
900,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 999,000
630,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 643,388
940,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 1,003,450
540,000 Majestic Investor Holdings/Capital
Corp. company guaranty 11.653s, 2007 588,600
430,000 Mandalay Resort Group 144A sr. notes
6 1/2s, 2009 437,525
1,970,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 2,216,250
490,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 515,725
105,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 113,269
200,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 218,000
1,420,000 Mohegan Tribal Gaming Authority 144A
sr. sub. notes 6 3/8s, 2009 1,432,425
1,020,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,091,400
380,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 392,825
395,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 437,463
115,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 123,913
199,000 Penn National Gaming, Inc. bank term
loan FRN Ser. B, 5.0563s, 2010 (acquired
2/19/03, cost $198,751) (RES) 199,995
455,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 509,600
955,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,027,819
119,700 Pinnacle Entertainment, Inc. bank
term loan FRN Ser. B, 5.7406s,
2008 (acquired 4/3/03, cost
$118,204) (RES) 120,299
370,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 366,300
220,000 Pinnacle Entertainment, Inc. sr.
sub. notes Ser. B, 9 1/2s, 2007 225,225
395,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 391,544
565,000 Riviera Holdings Corp. company
guaranty 11s, 2010 560,056
248,125 Scientific Gaming bank term loan FRN
Ser. B, 4.61s, 2008 (acquired
12/11/02, cost $246,884) (RES) 248,559
750,000 Station Casinos, Inc. sr. notes
8 3/8s, 2008 806,250
410,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 314,675
1,535,000 Trump Casino Holdings, LLC company
guaranty 11 5/8s, 2010 1,371,906
945,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 1,077,300
--------------
20,197,114
Health Care (3.7%)
-------------------------------------------------------------------------------
54,952 ALARIS Medical Systems, Inc. bank
term loan FRN 3.8694s,
2009 (acquired 6/30/03, cost
$54,952) (RES) 55,447
515,000 ALARIS Medical Systems, Inc. sr.
sub. notes 7 1/4s, 2011 517,575
100,000 Alderwoods Group, Inc. bank term
loan FRN 4.387s, 2008 (acquired
9/9/03, cost $100,000) (RES) 101,000
1,385,700 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 1,534,663
697,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 724,880
435,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 442,613
560,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 602,000
990,000 Ardent Health Services 144A sr. sub.
notes 10s, 2013 1,049,400
870,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 896,100
297,000 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.6399s, 2010
(acquired 7/11/02, cost $297,000) (RES) 297,603
199,500 Concentra bank term loan FRN
4.9203s, 2009 (acquired 8/12/03,
cost $199,500) (RES) 200,373
185,000 Dade Behring, Inc. company guaranty
11.91s, 2010 210,438
200,000 DaVita, Inc. bank term loan FRN
Ser. C, 3.6193s, 2009 (acquired
7/17/03, cost $200,000) (RES) 200,775
500,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 542,500
183,630 Fisher Scientific International,
Inc. bank term loan FRN Ser. B,
3.6s, 2010 (acquired 2/13/03, cost
$183,630) (RES) 185,053
37,341 Genesis Health Ventures, Inc. sec.
notes FRN 6.114s, 2007 36,968
100,000 Hanger Orthopedic Group, Inc. bank
term loan FRN 3.87s, 2009 (acquired
9/29/03, cost $100,000) (RES) 100,375
605,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 676,088
145,000 Hanger Orthopedic Group, Inc. sr.
sub. notes 11 1/4s, 2009 161,313
1,500,000 HCA, Inc. med. term notes 8.85s, 2007 1,697,091
1,240,000 HCA, Inc. notes 7s, 2007 1,350,687
1,095,000 Healthsouth Corp. notes 7 5/8s, 2012 941,700
510,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 448,800
245,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 211,925
205,000 Healthsouth Corp. sr. notes 7s, 2008 176,300
400,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 449,000
75,000 IASIS Healthcare Corp. company
guaranty 8 1/2s, 2009 77,625
1,000,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/2s, 2007 (In
default) (NON) 21,250
380,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/4s, 2008 (In
default) (NON) 8,550
149,625 Kinetic Concepts, Inc. bank term
loan FRN 3.87s, 2011 (acquired
8/5/03, cost $149,969) (RES) 150,420
1,440,000 Magellan Health Svcs., Inc. sr. sub.
notes 9s, 2008 (In default) (NON) 799,200
270,000 Magellan Health Svcs., Inc. 144A sr.
notes 9 3/8s, 2007 (In default) (NON) 279,450
149,625 Medex, Inc. bank term loan FRN
4.86s, 2009 (acquired various dates
from 5/16/03 to 6/16/03, cost $149,551) (RES) 150,248
560,000 Mediq, Inc. debs. zero %, 2009 (In
default) (NON) 56
925,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 980,500
1,590,000 Multicare Companies, Inc. sr. sub.
notes 9s, 2007 (In default) (NON) 23,850
EUR 50,000 NYCO Holdings 144A 11 1/2s, 2013 61,562
$740,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 723,350
1,135,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 1,308,088
670,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 666,650
75,000 Service Corp. International notes
7.2s, 2006 75,000
25,000 Service Corp. International notes
6 7/8s, 2007 24,875
110,000 Service Corp. International notes
6 1/2s, 2008 108,900
1,580,000 Service Corp. International notes
6s, 2005 1,587,900
270,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 276,075
720,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 802,800
115,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 110,113
560,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 548,800
1,995,000 Triad Hospitals Holdings company
guaranty Ser. B, 11s, 2009 2,194,500
632,042 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 4.11s, 2008 (acquired
4/24/01, cost $631,410) (RES) 634,915
35,000 Triad Hospitals, Inc. company
guaranty Ser. B, 8 3/4s, 2009 38,063
305,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 338,550
--------------
25,801,957
Homebuilding (1.0%)
-------------------------------------------------------------------------------
430,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 463,325
630,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 683,550
190,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 190,475
630,000 D.R. Horton, Inc. sr. notes 5 7/8s, 2013 582,750
450,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 519,750
575,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 615,250
130,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 139,100
210,000 K. Hovnanian Enterprises, Inc. 144A
sr. sub. notes 7 3/4s, 2013 216,300
365,000 KB Home sr. sub. notes 9 1/2s, 2011 400,131
295,000 Meritage Corp. 144A sr. notes
9 3/4s, 2011 322,288
615,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 699,563
140,000 Ryland Group, Inc. sr. notes 5 3/8s, 2008 140,875
385,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 436,494
190,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 204,250
135,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 142,425
250,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 273,125
160,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 175,200
530,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 567,100
--------------
6,771,951
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------
701,000 Sealy Mattress Co. company guaranty
Ser. B, zero %, 2007 716,773
890,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 903,350
--------------
1,620,123
Lodging/Tourism (1.4%)
-------------------------------------------------------------------------------
695,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 747,125
850,000 Hilton Hotels Corp. notes 7 5/8s, 2012 935,000
4,260,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 4,377,150
250,000 HMH Properties, Inc. sr. notes
Ser. C, 8.45s, 2008 260,313
279,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 291,904
585,000 ITT Corp. notes 6 3/4s, 2005 616,444
1,510,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 1,630,800
670,000 RFS Partnership LP company guaranty
9 3/4s, 2012 687,588
100,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 109,500
390,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 418,275
--------------
10,074,099
Publishing (2.2%)
-------------------------------------------------------------------------------
42,643 Affinity Group Holdings bank term
loan FRN Ser. B1, 4.85s, 2009 (acquired
5/27/03, cost $42,536) (RES) 42,656
106,607 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.1479s, 2009 (acquired
5/27/03, cost $106,341) (RES) 106,641
1,203,000 Affinity Group Holdings sr. notes
11s, 2007 1,233,075
200,000 Dex Media West, LLC bank term loan
FRN 3.87s, 2010 (acquired 9/9/03,
cost $200,000) (RES) 201,750
1,115,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 1,206,988
670,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 703,500
50,000 Garden State Newspapers, Inc. sr.
sub. notes Ser. B, 8 3/4s, 2009 51,375
450,000 Hollinger International Publishing,
Inc. sr. notes 9s, 2010 474,188
1,512,785 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada) (PIK) 1,701,883
530,000 Key3media Group, Inc. company
guaranty 11 1/4s, 2011 (In default) (NON) 5,300
120,000 Moore Wallace bank term loan FRN
Ser. B, 3.7313s, 2010 (acquired
3/13/03, cost $120,000) (RES) 121,013
188,478 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 4.0979s, 2009 (acquired
2/10/03, cost $180,468) (RES) 184,974
1,095,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 1,136,063
350,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 344,750
800,000 PRIMEDIA, Inc. 144A sr. notes 8s, 2013 802,000
165,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 137,981
1,055,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 1,200,063
248,108 RH Donnelley Finance Corp. I bank
term loan FRN Ser. B, 5.1295s, 2010
(acquired 12/04/02, cost $245,627) (RES) 252,489
925,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 1,036,000
600,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 708,000
168,038 Sum Media bank term loan FRN Ser. B,
3.61s, 2009 (acquired 2/4/03, cost
$168,038) (RES) 168,248
875,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 901,250
655,000 Vertis, Inc. sub. notes 13 1/2s, 2009 609,150
455,000 Vertis, Inc. 144A sec. notes 9 3/4s, 2009 478,888
920,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 982,100
100,000 Von Hoffman Press, Inc. company
guaranty FRN 10 3/8s, 2007 100,750
130,878 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 122,698
62,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 71,300
--------------
15,085,073
Retail (0.9%)
-------------------------------------------------------------------------------
85,643 Advance Stores bank term loan FRN
Ser. C, 3.983s, 2007 (acquired
3/4/03, cost $85,643) (RES) 85,879
455,000 Asbury Automotive Group, Inc.
company guaranty 9s, 2012 455,000
885,000 Autonation, Inc. company guaranty
9s, 2008 991,200
335,000 Gap, Inc. (The) notes 6.9s, 2007 360,125
375,000 Hollywood Entertainment Corp. sr.
sub. notes 9 5/8s, 2011 406,875
840,000 J. Crew Operating Corp. 144A sr.
sub. notes 10 3/8s, 2007 852,600
575,000 JC Penney Co., Inc. notes 9s, 2012 649,750
30,000 JC Penney Co., Inc. notes 8s, 2010 32,925
320,000 JC Penney Co., Inc. notes Ser. MTNA,
7.05s, 2005 332,800
1,580,000 Saks, Inc. company guaranty 8 1/4s, 2008 1,730,100
515,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 562,638
--------------
6,459,892
Technology (1.4%)
-------------------------------------------------------------------------------
630,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 708,750
149,250 Amkor Technologies, Inc. bank term
loan FRN 5.1247s, 2006 (acquired
4/17/03, cost $149,447) (RES) 151,147
390,000 Amkor Technologies, Inc. structured
notes 12.58s, 2005 (issued by
STEERS Credit Linked Trust 2000) 409,500
195,000 Avaya, Inc. sec. sr. notes 11 1/8s, 2009 225,713
785,000 DigitalNet Holdings Inc. 144A sr.
notes 9s, 2010 832,100
EUR 580,000 Getronics NV sub. notes 13s, 2008 (Netherlands) 324,985
$1,150,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 1,221,875
170,000 Iron Mountain, Inc. company guaranty
8 1/8s, 2008 (Canada) 176,375
390,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 405,600
790,000 ON Semiconductor Corp. company
guaranty 13s, 2008 900,600
560,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 583,800
620,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman Islands) 682,000
144,297 Telex Communications Group, Inc. sr.
sub. notes Ser. A, zero %, 2006 79,363
185,000 Xerox Capital Europe PLC company
guaranty 5 7/8s, 2004 (United Kingdom) 185,925
535,000 Xerox Corp. company guaranty 9 3/4s, 2009 593,850
EUR 195,000 Xerox Corp. sr. notes 9 3/4s, 2009 248,721
$300,000 Xerox Corp. sr. notes 7 5/8s, 2013 295,875
1,785,000 Xerox Corp. sr. notes 7 1/8s, 2010 1,778,306
--------------
9,804,485
Textiles (0.4%)
-------------------------------------------------------------------------------
560,000 Galey & Lord, Inc. company guaranty
9 1/8s, 2008 (In default) (NON) 4,200
295,000 Levi Strauss & Co. bank term loan
FRN 10s, 2009 (acquired 9/23/03,
cost $295,000) (RES) 301,514
940,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 752,000
460,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 489,900
505,000 Russell Corp. company guaranty
9 1/4s, 2010 536,563
615,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s, 2011 688,800
--------------
2,772,977
Tire & Rubber (--%)
-------------------------------------------------------------------------------
220,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 184,800
Transportation (1.1%)
-------------------------------------------------------------------------------
445,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 413,850
550,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s, 2011 462,000
80,000 American Airlines, Inc. pass-through
certificates Ser. 99-1, 7.024s, 2009 76,800
985,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 837,250
320,000 Continental Airlines, Inc.
pass-through certificates
Ser. D, 7.568s, 2006 240,000
930,000 CSX Corp. notes 6 1/4s, 2008 1,041,083
390,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s, 2005 322,178
267,352 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 216,555
925,000 Evergreen International Aviation,
Inc. 144A sec. notes 12s, 2010 841,750
EUR 400,000 Fixed-Link Finance BV sec. notes
Ser. B2-X, 7.85s, 2009 (Netherlands) 321,347
$910,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 1,003,275
190,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 197,125
135,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 137,700
540,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 473,850
261,692 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 259,730
195,176 Pacer International, Inc. bank term
loan FRN 4.4757s, 2010 (acquired
6/10/03, cost $195,858) (RES) 196,559
190,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 216,600
620,000 United AirLines, Inc. debs. 9 1/8s,
2012 (In default) (NON) 58,125
1,370,337 US Air, Inc. pass-through
certificates Ser. 93-A2,
9 5/8s, 2004 (In default) (NON) 479,618
--------------
7,795,395
Utilities & Power (3.9%)
-------------------------------------------------------------------------------
54,000 AES Corp. (The) sr. notes 8 7/8s, 2011 53,730
30,000 AES Corp. (The) sr. notes 8 3/4s, 2008 30,075
1,885,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 1,979,250
940,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 827,200
335,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 336,675
425,000 Avon Energy Partners Holdings 144A
notes 7.05s, 2007 (United Kingdom) 361,250
40,000 Avon Energy Partners Holdings 144A
notes 6.46s, 2008 (United Kingdom) 36,237
970,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008 (Canada) 697,188
250,000 Calpine Corp. bank term loan FRN
6.86s, 2007 (acquired 7/11/03, cost
$250,000) (RES) 235,486
460,000 Calpine Corp. sr. notes 8 3/4s, 2007 342,700
390,000 Calpine Corp. sr. notes 8 1/2s, 2011 274,950
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 493,500
1,940,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 1,784,800
280,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 297,817
240,000 CenterPoint Energy Resources Corp.
144A notes 7 7/8s, 2013 269,624
150,000 CMS Energy Corp. pass-through
certificates 7s, 2005 148,875
600,000 CMS Energy Corp. sr. notes 8.9s, 2008 621,000
230,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 234,025
180,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 178,650
295,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 247,063
1,810,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 1,909,550
40,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 37,400
265,000 Edison Mission Energy sr. notes 10s, 2008 233,200
440,000 Edison Mission Energy sr. notes
9 7/8s, 2011 376,200
320,000 Edison Mission Energy sr. notes
7.73s, 2009 260,800
155,000 El Paso CGP Co. debs. 6 1/2s, 2008 124,775
200,000 El Paso CGP Co. notes 6 3/8s, 2009 158,000
275,000 El Paso Corp. notes Ser. MTN, 6.95s, 2007 240,625
670,000 El Paso Corp. sr. notes 7 3/8s, 2012 547,725
365,000 El Paso Natural Gas Co. 144A sr.
notes 7 5/8s, 2010 352,225
925,000 El Paso Production Holding Co. 144A
sr. notes 7 3/4s, 2013 878,750
100,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 98,750
380,323 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 413,602
385,000 Midwest Generation LLC pass-through
certificates Ser. A, 8.3s, 2009 365,750
270,000 Mirant Americas Generation, Inc. sr.
notes 8.3s, 2011 (In default) (NON) 211,950
950,000 Mirant Americas Generation, Inc. sr.
notes 7 5/8s, 2006 (In default) (NON) 752,875
280,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 221,900
280,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 184,800
560,000 Nevada Power Co. 144A 2nd mtge. 9s, 2013 578,200
340,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 368,900
145,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 163,850
360,000 Pacific Gas & Electric Co. 144A sr.
notes 7 3/8s, 2005 (In default) (NON) 369,000
855,000 PG&E Corp. 144A sec. notes 6 7/8s, 2008 897,750
160,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 164,400
615,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 611,925
485,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 488,031
565,000 Sierra Pacific Resources notes
8 3/4s, 2005 526,863
90,000 Southern California Edison Co. notes
6 3/8s, 2006 94,500
920,000 Southern California Edison Co. 144A
1st mtge. 8s, 2007 1,028,100
320,000 Teco Energy, Inc. notes 10 1/2s, 2007 356,400
160,000 Teco Energy, Inc. notes 7.2s, 2011 157,600
405,000 Teco Energy, Inc. notes 7s, 2012 390,319
365,000 Teco Energy, Inc. sr. notes 7 1/2s, 2010 370,019
595,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 664,913
105,000 Williams Cos., Inc. (The) notes
9 1/4s, 2004 107,100
150,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 156,000
755,000 Williams Cos., Inc. (The) notes
Ser. A, 6 3/4s, 2006 758,775
545,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 546,363
705,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 747,300
375,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 363,750
120,000 Williams Products bank term loan FRN
4.9s, 2007 (acquired 6/4/03, cost
$120,000) (RES) 120,975
926,682 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default) (NON) 648,677
--------------
27,498,682
--------------
Total Corporate bonds and notes
(cost $355,326,393) $358,167,977
Foreign government bonds and notes (18.6%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$6,890,000 Brazil (Federal Republic of) bonds
2.188s, 2012 $5,512,000
1,495,000 Brazil (Federal Republic of) unsub.
10s, 2011 1,461,363
3,000,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 3,412,500
CAD 8,510,000 Canada (Government of) bonds 6s, 2011 6,972,018
CAD 3,680,000 Canada (Government of) bonds
Ser. WH31, 6s, 2008 2,991,466
$900,000 Chile (Republic of) bonds 5 1/2s, 2013 936,000
364,629 Colombia (Republic of) bank guaranty
9 3/4s, 2011 405,650
1,040,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,151,800
5,305,000 Colombia (Republic of) notes
10 3/4s, 2013 5,941,600
EUR 770,000 Colombia (Republic of) unsub. bonds
Ser. 15A, 11 3/8s, 2008 1,022,023
$915,000 Dominican (Republic of) 144A notes
9.04s, 2013 828,075
1,000,000 Ecuador (Republic of) bonds
Ser. REGS, 12s, 2012 827,500
1,000,000 El Salvador (Republic of) 144A notes
8 1/2s, 2011 1,090,000
EUR 8,330,000 Germany (Federal Republic of) bonds
Ser. 95, 7 3/8s, 2005 10,319,331
EUR 1,345,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 1,585,558
$185,000 Indonesia (Republic of) FRN 2.005s, 2006 159,100
460,000 Indonesia (Republic of) FRN 2.005s, 2005 418,600
EUR 3,400,000 Italy (Government of) treasury bonds
5 1/2s, 2010 4,400,798
NZD 9,290,000 New Zealand (Government of) bonds
6 1/2s, 2013 5,776,485
NZD 5,804,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 3,667,473
$1,635,000 Peru (Republic of) notes 9 1/8s, 2008 1,908,863
EUR 355,000 Philippines (Republic of) 144A bonds
9 1/8s, 2010 437,506
$12,690,000 Russia (Federation of) unsub.
8 1/4s, 2010 14,327,010
EUR 305,000 South Africa (Republic of) bonds
5 1/4s, 2013 346,234
$2,855,000 South Africa (Republic of) notes
7 3/8s, 2012 3,237,570
EUR 1,000,000 Spain (Government of) bonds 5.4s, 2011 1,292,373
SEK 30,690,000 Sweden (Government of) bonds 6 3/4s, 2014 4,699,830
SEK 26,915,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 4,268,719
$1,000,000 Turkey (Republic of) bonds 11 3/4s, 2010 1,141,500
3,000,000 Turkey (Republic of) notes 9 7/8s, 2008 3,237,000
401,804 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 446,806
EUR 231,936 Ukraine (Government of) sr. notes
Ser. REGS, 10s, 2007 292,186
$730,000 Ukraine (Government of) sr. notes,
7.65s, 2013 725,620
GBP 4,030,000 United Kingdom treasury bonds
7 1/4s, 2007 7,448,231
GBP 6,900,000 United Kingdom treasury bonds
7 1/2s, 2006 12,586,341
$1,835,000 United Mexican States notes 7 1/2s, 2012 2,076,303
8,440,000 United Mexican States notes 6 3/8s, 2013 8,874,660
630,000 United Mexican States notes 4 5/8s, 2008 642,600
3,428,480 Venezuela (Republic of) FRB 1 7/8s, 2007 3,098,660
465,000 Venezuela (Republic of) 144A notes
10 3/4s, 2013 428,963
--------------
Total Foreign government bonds and
notes (cost $116,502,678) $130,396,315
U.S. government and agency obligations (13.5%) (a)
Principal amount Value
U.S. Government and Agency Mortgage Obligations (9.8%)
-------------------------------------------------------------------------------
Federal National Mortgage
Association Pass-Through
Certificates
$201 8 1/2s, March 1, 2006 $215
24,529 8s, with due dates from October 1,
2025 to July 1, 2028 26,638
61,691 7 1/2s, December 1, 2029 65,851
669,233 6 1/2s, August 1, 2032 697,636
19,728,000 6 1/2s, TBA, October 1, 2032 20,560,285
12,489,400 5s, TBA, October 1, 2033 12,489,400
Government National Mortgage
Association Pass-Through
Certificates
4,097,676 5s, with due dates from August 15,
2033 to September 15, 2033 4,109,116
31,032,000 5s, TBA, October 1, 2033 31,090,185
--------------
69,039,326
U.S. Treasury Obligations (3.7%)
-------------------------------------------------------------------------------
U.S. Treasury Notes
7,500,000 6 1/2s, February 15, 2010 8,900,100
16,690,000 1 5/8s, March 31, 2005 16,792,360
--------------
25,692,460
--------------
Total U.S. government and agency
obligations (cost $93,386,439) $94,731,786
Asset-backed securities (7.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$419,290 ABSC Nims Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $409,856
Ameriquest Mortgage Securities, Inc.
104,000 FRB Ser. 03-10, 4.869s, 2012 85,456
83,000 FRB Ser. 03-8, Class MV6, 4.86s, 2033 69,709
164,000 FRN Ser. 03-AR3, Class M5, 4.87s, 2033 155,480
418,000 FRN Ser. 03-1, Class M4, 4.2s, 2033 349,353
Amortizing Residential Collateral Trust
19,303,636 Ser. 02-BC1, Class A, IO, 6s, 2005 744,486
387,000 FRN Ser. 02-BC5, Class B, 3.37s, 2032 330,462
144,000 FRN Ser. 02-BC7, Class B3, 3.12s, 2032 124,453
507,040 AQ Finance NIM Trust Ser. 03-N1,
Class Note, 9.37s, 2033 507,028
AQ Finance NIM Trust 144A
994,826 Ser. 03-N2, Class Note, 9.3s, 2033 994,826
213,000 Ser. 03-N9A, Class NOTE, 7.385s, 2033 213,000
Arc Net Interest Margin Trust 144A
312,278 Ser. 02-8A, Class A1, 7 3/4s, 2032 309,705
158,470 Ser. 02-1A, Class A, 7 3/4s, 2032 158,443
98,135 Arc Net Interest Margin Trust Ser.
02-5A, Class A, 7 3/4s, 2032 97,503
383,000 Arcap, Inc. 144A Ser. 03-1A, Class
E, 6.33s, 2038 (R) 395,208
180,000 Argent Securities, Inc. FRB Ser.
03-W1, Class MV6, 4.87s, 2033 142,128
Asset Backed Funding Certificates 2031 340,140
434,000 FRB Ser. 03-WF1, Class M3, 4.17s, 2032 434,000
132,000 FRB Ser. 03-WF1, Class M4, 4.37s, 2032 120,816
63,513 Asset Backed Funding Corp. NIM Trust
Ser. 02-WF1, 9.32s, 2032 63,513
154,388 Asset Backed Funding Corp. NIM Trust
144A Ser. 03-WF1, Class N1, 8.35s, 2032 154,388
Asset Backed Securities Corp. Home
Equity Loan Trust
250,000 FRB Ser. 02-HE3, Class M4, 4.12s, 2032 215,614
159,000 FRB Ser. 03-HE5, Class M5, 5.37s, 2033 137,202
362,000 FRB Ser. 03-HE6, Class M6, 5.12s, 2033 316,388
372,000 FRN Ser. 03-HE1, Class M4, 5.62s, 2033 324,655
390,000 FRN Ser. 03-HE3, Class M5, 5.12s, 2033 333,188
806,000 FRN Ser. 03-HE2, Class M4, 4.97s, 2033 776,130
340,001 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 1.82s, 2033 340,001
1,845,000 Bank One Issuance Trust FRN Ser.
02-C1, Class C1, 2.08s, 2009 1,833,973
Bayview Financial Acquisition Trust
995,000 Ser. 02-CA, Class A, IO, 7.15s, 2004 37,623
710,870 FRN Ser. 01-DA, Class M3, 2.52s, 2031 703,762
34,465,189 Ser. 03-X, Class AIO1, IO, 1.36s, 2006 506,207
CDC Mortgage Capital Trust
257,000 FRB Ser. 03-HE3, Class B3, 4.87s, 2033 213,079
349,997 FRN Ser. 03-HE2, Class B3, 4.87s, 2033 298,238
68,072 Chase Funding Net Interest Margin
Ser. 02-2, 8 1/2s, 2035 67,868
Chase Funding Net Interest Margin 144A
157,932 Ser. 03-1A, Class NOTE, 8 3/4s, 2004 158,406
690,482 Ser. 03-4A, Class NOTE, 6 3/4s, 2036 689,722
390,845 Ser. 03-2A, Class NOTE, 8 3/4s, 2035 388,773
Conseco Finance Securitizations Corp.
248,000 Ser. 00-2, Class A4, 8.48s, 2021 258,209
4,342,000 Ser. 00-4, Class A6, 8.31s, 2032 3,848,182
1,100,000 Ser. 00-6, Class M2, 8.2s, 2032 550,000
23,000 Ser. 01-04, Class A4, 7.36s, 2019 21,848
13,000 Ser. 01-3, Class A3, 5.79s, 2024 12,831
494,000 Ser. 01-3, Class A4, 6.91s, 2033 455,212
1,030,000 Ser. 01-4, Class B1, 9.4s, 2010 360,500
2,960,176 Ser. 02-1, Class A, 6.681s, 2032 2,949,890
300,000 Ser. 2001-3, Class M2, 7.44s, 2033 99,000
790,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.14s, 2007 787,346
First Franklin Mortgage Loan Asset
Backed Certificates
169,000 Ser. 03-FF3, 4.12s, 2033 158,315
187,000 FRB Ser. 03-FF4, Class M6, 4.92s, 2033 170,141
Granite Mortgages PLC
EUR 1,430,000 Ser. 03-2, Class 2C1, 5.2s, 2010
(United Kingdom) 1,644,970
GBP 1,075,000 FRN Ser. 03-2, Class 3C, 4.956s,
2043 (United Kingdom) 1,785,898
Green Tree Financial Corp.
$165,693 Ser. 99-3, 6.16s, 2031 168,248
1,247,000 Ser. 99-5, Class A5, 7.86s, 2030 1,114,047
Greenpoint Manufactured Housing
2,100,522 Ser. 00-3, Class IA, 8.45s, 2031 1,826,624
50,000 Ser. 99-5, Class A4, 7.59s, 2028 50,806
GSAMP Trust
123,726 Ser. 02-HE2N, Class Note, 8 1/4s, 2032 123,814
214,000 FRB Ser. 03-FM1, Class B3, 5.62s, 2033 190,995
318,215 GSAMP Trust 144A Ser. 03-HE1N, Class
NOTE, 7 1/4s, 2033 340,758
Home Equity Asset Trust
114,346 Ser. 02-1N, Class A, 8s, 2032 112,917
383,000 FRB Ser. 03-5, Class B3, 5.62s, 2033 340,321
Home Equity Asset Trust 144A
691,565 Ser. 02-5N, Class A, 8s, 2033 677,734
278,000 Ser. 03-4N, Class A, 8s, 2033 276,165
1,260,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL,
3.87s, 2037 1,164,996
598,632 Long Beach Asset Holdings Corp. 144A
Ser. 03-2, Class N1, 7.627s, 2033 598,632
305,776 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class
N1, 6.535s, 2033 305,681
419,000 Long Beach Mortgage Loan Trust FRN
Ser. 03-3, Class M4, 4.62s, 2033 343,580
1,046,356 Madison Avenue Manufactured Housing
Contract FRN Ser. 02-A, Class B1,
4.37s, 2032 680,131
Mastr Asset Backed Securities Trust
136,000 FRB Ser. 03-NC1, 5.12s, 2033 112,200
205,000 FRB Ser. 03-OPT1, Class MV5, 4.62s, 2032 179,831
524,000 FRN Ser. 03-OPT2, Class M5, 4.87s, 2033 462,983
Merrill Lynch Mortgage Investors, Inc.
351,000 Ser. 03-WM3N, Class N1, 8s, 2005 347,702
685,000 FRB Ser. 03-WMC1, Class B2, 4.12s, 2033 648,181
300,000 FRB Ser. 03-WMC3, Class B3, 4.12s, 2034 252,750
Mid-State Trust
554,117 Ser. 10, Class B, 7.54s, 2036 498,621
440,795 Ser. 11, Class B, 8.221s, 2038 423,232
Morgan Stanley Capital I
354,000 FRB Ser. 02-NC6, Class B2, 4.87s, 2032 307,427
398,000 FRB Ser. 03-NC10, Class B3, 4.869s, 2013 331,646
472,000 FRB Ser. 03-NC8, Class B3, 4.87s, 2033 389,432
399,000 FRN Ser. 03-NC6, Class B3, 4.87s, 2033 332,138
Morgan Stanley Dean Witter Capital I
390,000 FRN Ser. 01-NC3, Class B1, 3.57s, 2031 355,043
358,000 FRN Ser. 01-NC4, Class B1, 3.62s, 2032 325,014
640,000 FRN Ser. 02-AM2, Class B1, 3.37s, 2032 576,757
355,000 FRN Ser. 02-HE1, Class B1, 2.92s, 2032 332,571
82,798 Morgan Stanley Dean Witter Capital I
144A Ser. 01-NC4N, Class Note,
8 1/2s, 2032 82,884
400,000 New Century Home Equity Loan Trust
FRN Ser. 03-2, Class M4, 4.72s, 2033 341,000
77,228 NovaStar Caps Trust Ser. 02-C1,
Class A, 7.15s, 2031 90,406
Option One Mortgage Loan Trust
375,000 FRB Ser. 03-6, Class M6, 4.62s, 2033 321,768
377,000 FRN Ser. 03-3, Class M6, 4.62s, 2033 334,440
175,709 Option One Mortgage Securities Corp.
Ser. 02-2A, Class CFTS, 8.83s, 2032 175,709
Option One Mortgage Securities Corp. 144A
168,583 Ser. 02-1, Class CTFS, 6 3/4s, 2032 167,871
187,911 Ser. 03-5, 6.9s, 2033 187,911
233,129 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 03-2B, Class N1,
7.63s, 2033 (Cayman Islands) 233,056
963,377 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 6.62s, 2012 960,015
4,594,057 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 0.347s, 2005 313,688
157,882 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 166,245
SAIL Net Interest Margin Notes 144A
445,599 Ser. 03-7A, Class A, 7s, 2033 442,293
482,153 Ser. 03-FF3A, Class A, 6 3/4s, 2033 480,281
138,000 Ser. 03-8A, Class A, 7s, 2033 137,305
Sasco Arc Net Interest Margin Notes 144A
426,885 Ser. 03-3, Class A, 7 3/4s, 2033 424,742
157,519 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 157,353
806,305 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 806,069
760,239 Ser. 03-BC2A, Class A, 7 3/4s, 2033 758,030
140,366 Ser. 02-BC10, Class A, 7 3/4s, 2033 139,090
709,321 Ser. 03-AM1, Class A, 7 3/4s, 2033 705,863
275,880 Ser. 03-BC1, Class B, zero %, 2033 197,556
265,000 Saxon Asset Securities Trust FRB
Ser. 03-3, Class M6, 6.656s, 2033 228,438
351,000 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6 3/4s, 2033 351,000
140,000 SCF III Class A2, 2.31s, 2038 140,000
147,108 SHARP 144A Ser. 03-TC1N, 7 3/4s, 2033 147,108
Structured Asset Investment Loan Trust
955,000 Ser. 03-BC1, Class M3, 4.12s, 2033 946,495
813,539 Ser. 03-BC1A, Class A, 7 3/4s, 2033 809,585
9,136,654 Ser. 03-BC2, Class A, IO, 6s, 2005 588,864
138,000 Ser. 03-BC2, Class B, 7s, 2033 131,081
368,000 FRN Ser. 03-BC3, Class B, 4.62s, 2033 329,015
395,000 Structured Asset Securities Corp.
FRN Ser. 02-HF2, Class M3, 3.12s, 2032 335,966
390,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 328,804
904,000 WALT 144A Ser. 03-1, Class D, 6s, 2010 907,814
2,877,000 Washington Mutual Ser. 03-S1, Class
A11, IO, 5.5s, 2033 269,719
--------------
Total Asset-backed securities
(cost $57,414,623) $53,971,565
Collateralized mortgage obligations (5.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$27,567,500 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.193s, 2023 $965,326
GBP 1,333,369 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 4.102s, 2011
(Ireland) 2,215,126
Federal National Mortgage Association
$229,839 Ser. 98-51, Class SG, IO, 25.3s, 2022 92,699
1,380,109 Ser. 02-36, Class SJ, 17.325s, 2029 1,540,704
743,543 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 819,120
13,826 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 15,232
872,147 Ser. 01-T10, Class A2, 7 1/2s, 2041 960,797
22,387 Ser. 01-T8, Class A1, 7 1/2s, 2041 24,662
3,363,089 Ser. 01-T7, Class A1, 7 1/2s, 2041 3,704,934
495,604 Ser. 01-T3, Class A1, 7 1/2s, 2040 545,979
1,489,899 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,641,341
595,502 Ser. 99-T2, Class A1, 7 1/2s, 2039 656,033
320,314 Ser. 00-T6, Class A1, 7 1/2s, 2030 352,873
1,477,160 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,627,307
3,686 Ser. 02-W3, Class A5, 7 1/2s, 2028 4,060
60,895 Ser. 02-21, Class PS, IO, 7.08s, 2025 400
3,809,194 Ser. 02-9, Class MS, IO, 6.98s, 2032 328,543
2,990,215 Ser. 02-36, Class QH, IO, 6.93s, 2029 191,929
666,702 Ser. 02-29, Class SL, IO, 6.93s, 2029 18,921
1,738,377 Ser. 02-63, Class SN, IO, 6.88s, 2032 152,108
1,624,841 Ser. 02-52, Class SL, IO, 6.88s, 2032 123,704
2,800,603 Ser. 02-92, Class SA, IO, 6.83s, 2033 341,323
1,629,123 Ser. 03-7, Class SM, IO, 6.63s, 2023 52,183
4,083,268 Ser. 03-49, Class TS, IO, 6.58s, 2018 553,155
1,827,166 Ser. 03-14, Class KS, IO, 6.48s, 2017 168,156
901,145 Ser. 03-23, Class SC, IO, 6.43s, 2033 49,000
3,314,600 Ser. 03-41, Class SP, IO, 6.08s, 2015 291,063
9,623,799 Ser. 03-34, Class ES, IO, 5.88s, 2033 1,005,988
3,849,492 Ser. 03-34, Class SG, IO, 5.88s, 2033 409,610
2,479,464 Ser. 03-45, Class PI, IO, 5 1/2s, 2029 283,589
Federal National Mortgage Association
6,996,681 Ser. 03-63, Class SE, IO, 5.48s, 2031 834,136
13,877,239 Ser. 03-W10, Class 3A, IO, 2.247s, 2043 587,614
11,561,749 Ser. 03-W10, Class 1A, IO, 2.227s, 2043 494,987
1,733,619 Ser. 318, Class 2, IO, 6s, 2032 270,878
4,814,741 Ser. 329, Class 2, IO, 5.5s, 2033 1,008,110
708,763 Ser. 01-74, Class MI, IO, 6s, 2015 47,139
1,620,244 Ser. 332, Class 2, IO, 6s, 2033 302,791
1,880,500 Ser. 03-24, Class IC, IO, 5s, 2015 296,252
1,347,490 Ser. 322, Class 2, IO, 6s, 2032 210,545
1,582,668 Ser. 03-58, IO, 6s, 2033 272,021
11,358,216 Ser. 03-34, IO, 6s, 2032 1,187,289
2,017,407 Ser. 03-26, Class IG, IO, 6s, 2033 338,546
5,595,291 Ser. 03-23, Class AI, IO, 5s, 2017 591,003
3,361,422 Ser. 03-37, Class IC, IO, 5.5s, 2027 352,961
30,199 Ser. 02-27, Class IA, IO, 6s, 2013 193
232,904 Ser. 02-97, PO, zero %, 2033 218,493
288,149 Ser. 99-51, Class N, PO, zero %, 2029 255,057
219,009 Ser. 99-52, Class MO, PO, zero %, 2026 213,544
108,607 Ser. 96-5, Class PB, PO, zero %, 2024 107,521
17,227 Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
Ser. T-58, Class 4A, 7 1/2s, 2043 18,942
Federal Home Loan Mortgage Corporation
1,309,500 Ser. 2412, Class GS, FRN, 18.018s, 2032 1,532,115
1,418,300 Ser. 2515, Class IG, IO, 5.5s, 2032 428,353
5,832,044 Ser. 216, IO, 6s, 2032 872,987
2,707,400 Ser. 2448, Class SM, IO, 6.88s, 2032 419,647
729,500 Ser. 2590, Class IH, IO, 5.5s, 2028 191,950
786,443 Ser. 2448, Class SE, IO, 6.98s, 2029 26,542
546,555 Ser. 2478, Class SY, IO, 7.03s, 2021 24,937
2,942,623 Ser. 2579, Class GS, IO, 6.53s, 2017 255,107
715,360 Ser. 215, Class PO, PO, zero %, 2031 653,437
597,062 Ser. 2235, PO, zero %, 2030 529,519
3 Ser. 2078, Class KC, PO, zero % 2023 3
15,700,392 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.66s, 2027 1,157,951
Government National Mortgage Association
523,605 Ser. 02-36, Class SD, IO, 7.03s, 2029 10,636
1,189,212 Ser. 02-51, Class SA, IO, 6.98s, 2032 41,639
1,450,144 Ser. 02-29, Class SX, IO, 6.93s, 2029 41,682
2,073,880 Ser. 01-43, Class SJ, IO, 6.48s, 2029 106,161
926,361 Ser. 01-43, Class SD, IO, 6.44s, 2028 11,869
3,421,470 Ser. 01-19, Class S, IO, 6.38s, 2031 290,825
4,960,900 Ser. 03-83, Class SI, IO, 5.38s, 2032 448,806
3,489,040 Ser. 02-47, Class SM, IO, 4.85s, 2032 202,800
239,748 Ser. 02-40, Class IB, IO, 6.5s, 2028 4,158
314,384 Ser. 98-2, Class EA, PO, zero %, 2028 285,003
10,427,652 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, IO, 2.11s, 2028 746,656
3,169,881 Merrill Lynch Mortgage Trust 144A
Ser. 02-MW1, Class XP, IO, 1.62s, 2034 226,595
5,450,228 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.54s, 2012 212,333
Strategic Hotel Capital, Inc. 144A
605,000 Ser. 03-1, Class I, 3.52s, 2013 605,000
1,626,000 Ser. 03-1, Class H, 3.22s, 2013 1,626,000
180,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3, 6.943s, 2013 194,168
--------------
Total Collateralized mortgage
obligations (cost $41,138,820) $37,890,766
Preferred stocks (1.1%) (a)
Number of shares Value
-------------------------------------------------------------------------------
10,732 Chevy Chase Preferred Capital Corp.
Ser. A, $5.188 pfd. $607,431
3,150 Chevy Chase Savings Bank, Inc. $3.25 pfd. 87,806
23,612 CSC Holdings, Inc. Ser. M, $11.125
cum. pfd. 2,476,309
19,200 Diva Systems Corp. Ser. C, 6.00%
cum. pfd. 192
212 Dobson Communications Corp. 13.00%
pfd. (PIK) 222,600
1,256 Dobson Communications Corp. 12.25%
pfd. (PIK) 1,319,252
320 First Republic Capital Corp. 144A
10.50% pfd. 344,000
11,765 Fitzgeralds Gaming Corp. zero % cum. pfd. 118
12,814 iStar Financial, Inc. $1.95 cum. pfd. 320,350
41 Leiner Health Products Ser. C, zero % pfd. 1
16,417 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 410,424
100 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 1,100
3,574 Microcell Telecommunications, Inc.
zero % pfd. (Canada) 42,390
1,337 North Atlantic Trading Co. 12.00%
pfd. (PIK) 22,073
17 NTL Europe, Inc. Ser. A, zero % cum. pfd. 60
105 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 924,000
1,301 Rural Cellular Corp. 12.25% pfd. (PIK) 728,560
--------------
Total Preferred stocks
(cost $8,619,060) $7,506,666
Common stocks (0.9%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,305 Alderwoods Group, Inc. (NON) $17,864
820,000 AMRESCO Creditor Trust (NON) (R) 22,960
1,770 Archibald Candy Corp. (NON) 5,045
14,080 Aurora Foods, Inc. (NON) 1,478
2,880 Birch Telecom, Inc. (NON) 9,965
493 Comdisco Holding Co., Inc. (NON) 41,412
36,832 Conseco, Inc. (NON) 665,186
3,445,121 Contifinancial Corp. Liquidating
Trust Units 34,451
15,321 Covad Communications Group, Inc. (NON) 84,725
84,755 Dobson Communications Corp. (NON) 688,211
22,904 Fitzgeralds Gaming Corp. (NON) 229
1,807 Genesis Health Ventures, Inc. (NON) 43,820
34,403 Globix Corp. (NON) 86,008
7,661 Jasper Energy 144A (NON) 479
44,795 Laidlaw International, Inc. (NON) 441,231
19,451 Lodgian, Inc. (NON) 104,063
120,000 Loewen Group International, Inc. (NON) 12
1,400 Mariner Health Care, Inc. (NON) 17,080
1,400 Mediq, Inc. (NON) 140
166 Metrocall Holdings, Inc. (NON) 24,070
30 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 334
3,552 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 42,155
870,000 Morrison Knudsen Corp. (NON) 93,525
49,759 Pioneer Cos., Inc. (NON) 226,403
7,016 Polymer Group, Inc. Class A (NON) 60,618
327 Premium Holdings (LP) 144A (NON) 7,030
715 PSF Group Holdings, Inc. 144A Class
A (NON) 1,251,828
167 Quorum Broadcast Holdings, Inc.
Class E (acquired 5/15/01, cost
$166,516) (NON) (RES) 89,187
120,076 Regal Entertainment Group 144A 2,010,072
110 Sterling Chemicals, Inc. (NON) 1,678
740 Sun Healthcare Group, Inc. (NON) 5,365
948,000 VFB LLC (NON) 180,120
2,135 Washington Group International, Inc. (NON) 57,538
249 WilTel Communications, Inc. (NON) 3,979
1,567 York Research Corp. 144A (NON) 98
--------------
Total Common stocks
(cost $15,255,121) $6,318,359
Convertible bonds and notes (0.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$115,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $106,088
895,000 American Tower Corp. cv. notes 5s, 2010 808,856
200,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 190,250
2,430,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 2,430
230,000 DaVita, Inc. cv. sub. notes 7s, 2009 240,063
275,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 4 3/4s, 2006 240,969
18,000 Millicom International Cellular SA
144A cv. bonds zero %,
2006 (Luxembourg) (PIK) 36,000
1,155,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 1,251,731
310,000 Rogers Communications cv. debs. 2s,
2005 (Canada) 277,838
--------------
Total Convertible bonds and notes
(cost $4,743,584) $3,154,225
Units (0.2%) (a)
Number of units Value
-------------------------------------------------------------------------------
600,000 Australis Media, Ltd. units 15 3/4s,
2003 (Australia) (In default) (DEF) (NON) $60
1,193,000 HMP Equity Holdings Corp. units zero %, 2008 578,605
220,000 Tom Brown Inc. units 7 1/4s, 2013 227,700
950 XCL Equity Units zero % 133,333
500,000 XCL, Ltd. 144A units 13 1/2s, 2004
(In default) (NON) 150,000
--------------
Total Units (cost $2,067,129) $1,089,698
Convertible preferred stocks (0.1%) (a)
Number of shares Value
-------------------------------------------------------------------------------
9,140 Crown Castle International Corp.
$3.125 cv. pfd. $356,460
1,991 Knology, Inc. 144A Ser. D, zero %
cv. pfd. 20
3,800 LTV Corp. 144A $4.125 cv. pfd. (In
default) (NON) 38
48 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 364,800
6,847 Telex Communications, Inc. zero %
cv. pfd. (In default) (NON) 6,847
--------------
Total Convertible preferred stocks
(cost $912,180) $728,165
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
1,500 Comunicacion Celular SA 144A
(Colombia) 11/15/03 $1,500
1,020 Dayton Superior Corp. 144A 6/15/09 255
809 Diva Systems Corp. 144A 5/15/06 8
3 Doe Run Resources Corp. 144A 12/31/12 1
295 MDP Acquisitions PLC 144A (Ireland) 10/1/13 737
2,199 Microcell Telecommunications
(Canada) 5/1/08 3,797
1,319 Microcell Telecommunications
(Canada) 5/1/05 1,545
390 Mikohn Gaming Corp. 144A 8/15/08 4
400 ONO Finance PLC 144A (United
Kingdom) 2/15/11 1
410 Pliant Corp. 144A 6/1/10 205
491 Solutia, Inc. 144A 7/15/09 12,275
1,851 Sun Healthcare Group, Inc. 2/28/05 1
1,830 Travel Centers of America, Inc. 144A 5/1/09 18,300
1,670 Ubiquitel, Inc. 144A 4/15/10 17
30 Versatel Telecom NV (Netherlands) 5/15/08 1
1,317 Washington Group International, Inc.
Ser. A 1/25/06 6,650
1,506 Washington Group International, Inc.
Ser. B 1/25/06 5,270
814 Washington Group International, Inc.
Ser. C 1/25/06 2,483
590 XM Satellite Radio Holdings, Inc.
144A 3/15/10 6
--------------
Total Warrants (cost $482,247) $53,056
Short-term investments (9.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$1,752,000 U.S. Treasury Note zero %, November
6, 2003 (SEG) $1,750,180
629,218 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.04% to
1.19% and due dates ranging from
October 1, 2003 to November 18,
2003 (d) 628,900
33,912,000 Interest in $357,000,000 tri-party
repurchase agreement dated
September 30, 2003 with UBS
Securities, LLC due October 1, 2003
with respect to various U.S.
Government obligations -- maturity
value of $33,913,017 for an
effective yield of 1.08% 33,912,000
33,000,000 Interest in $263,000,000 tri-party
repurchase agreement dated
September 30, 2003 with Goldman
Sachs & Co. due October 1, 2003
with respect to various U.S.
Government obligations -- maturity
value of $33,000,990 for an
effective yield of 1.08% 33,000,000
--------------
Total Short-term investments
(cost $69,291,080) $69,291,080
-------------------------------------------------------------------------------
Total Investments
(cost $765,139,354) $763,299,658
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $700,693,933.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2003
was $16,870,304 or 2.4% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at September 30, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at September 30, 2003.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 2003:
(as a percentage of Market Value)
Brazil 0.9%
Canada 2.9
Colombia 1.1
France 0.7
Germany 1.4
Italy 0.6
Luxembourg 0.6
Malaysia 0.7
New Zealand 1.2
Russia 2.4
South Africa 0.5
Sweden 1.2
United Kingdom 3.6
United States 77.0
Other 5.2
-------------------------------
Total 100.0%
Forward currency contracts to buy at September 30, 2003
(aggregate face value $57,307,924)
Market Aggregate Delivery Unrealized
value face value date appreciation
--------------------------------------------------------------------------
Australian Dollar $20,697,424 $19,866,055 12/17/03 $831,369
British Pound 45,604 43,636 12/17/03 1,968
Canadian Dollar 714,402 703,995 12/17/03 10,407
Danish Krone 1,098,488 1,023,418 12/17/03 75,070
Euro 1,386,755 1,364,887 12/17/03 21,868
Japanese Yen 32,492,896 30,962,855 12/17/03 1,530,041
Swedish Krona 319,699 306,220 12/17/03 13,479
Swiss Franc 447,830 418,633 12/17/03 29,197
Taiwan Dollar 2,633,761 2,618,225 12/17/03 15,536
--------------------------------------------------------------------------
$2,528,935
Forward currency contracts to sell at September 30, 2003
(aggregate face value $59,287,714)
Unrealized
Market Aggregate Delivery appreciation/
value face value date (depreciation)
--------------------------------------------------------------------------
British Pound $7,362,196 $7,154,238 12/17/03 $(207,958)
Canadian Dollar 9,736,218 9,462,387 12/17/03 (273,831)
Euro 26,169,133 24,416,724 12/17/03 (1,752,409)
Japanese Yen 1,612,567 1,613,486 12/17/03 919
New Zealand Dollar 9,226,829 8,850,632 12/17/03 (376,197)
Swedish Krona 8,518,827 7,790,247 12/17/03 (728,580)
--------------------------------------------------------------------------
$(3,338,056)
--------------------------------------------------------------------------
Futures contracts outstanding at September 30, 2003
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
-------------------------------------------------------------------------------------
3 Month Eurodollar (short) $33,939,375 $33,830,516 Sep-04 $(108,859)
3 Month Eurodollar (long) 33,073,425 32,916,066 Sep-06 157,359
3 Month Eurodollar (short) 32,561,100 32,488,712 Jun-04 (72,388)
3 Month Eurodollar (long) 31,708,050 31,643,449 Jun-06 64,601
Euro-Bobl 5 yr (long) 20,996,536 20,495,009 Dec-03 501,527
Euro-Bund 10 yr (long) 21,050,688 20,461,065 Dec-03 589,623
Interest Rate Swap 10 yr (long) 1,683,750 1,623,879 Dec-03 59,871
Japanese Government
Bond 10 yr (long) 11,043,602 10,916,117 Dec-03 127,485
US Treasury Bond 20 yr (long) 1,570,188 1,469,011 Dec-03 101,177
US Treasury Note 10 yr (long) 46,193,875 43,986,206 Dec-03 2,207,669
US Treasury Note 5 yr (short) 26,438,219 25,786,719 Dec-03 (651,500)
-------------------------------------------------------------------------------------
$2,976,565
-------------------------------------------------------------------------------------
TBA sales commitments at September 30, 2003
(proceeds receivable $5,710,309)
Principal Settlement Market
amount date value
------------------------------------------------------------------------------
GNMA, 5s, October 2033 $5,773,000 10/22/03 $5,783,824
------------------------------------------------------------------------------
Interest rate swap contracts outstanding at September 30, 2003
Notional Termination Unrealized
amount date appreciation
------------------------------------------------------------------------------------------------------
Agreement with Merrill Lynch Capital Services,
Inc. dated November 17, 2000 to pay
semi-annually the notional amount multiplied
by the three month USD-LIBOR-BBA and
receive the notional amount multiplied
by 6.68%. $6,500,000 11/21/05 $657,144
Agreement with Merrill Lynch Capital Services,
Inc. dated September 27, 2002 to receive
semi-annually the notional amount multiplied
by the six month JPY-LIBOR-BBA and pay
monthly the notional amount multiplied
by 0.399%. JPY 2,443,000,000 10/1/07 224,261
------------------------------------------------------------------------------------------------------
$881,405
------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at September 30, 2003
(premiums received $260,184)
Notional Market
amount value
------------------------------------------------------------------------------------------------------
Agreement with Deutsche Bank effective July 18, 2003,
maturing on September 20, 2008, to receive a premium
equal to 9.795% times the notional amount. Upon a credit
default event of Petroleos Mexicanos, the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market
value of Petroleos Mexicanos. $415,000 $36,387
Agreement with Lehman Brothers Special Financing, Inc.
effective July 18, 2003, maturing on September 20, 2008
to receive a premium equal to 10.02% times the notional
amount. Upon a credit default event of Petroleos Mexicanos,
the fund makes a payment of the proportional notional
amount times the difference between the par value and the
then-market value of Petroleos Mexicanos. 415,000 37,143
Agreement with Deutsche Bank effective September 9, 2003,
maturing on September 20, 2013 to receive a premium equal to
21.44% times the notional amount. Upon a credit default event of
Petroleos Mexicanos, 7.375% due 12/12/14 the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market
value of Petroleos Mexicanos. 830,000 172,748
------------------------------------------------------------------------------------------------------
$246,278
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
September 30, 2003
Assets
-------------------------------------------------------------------------------
Investments in securities, at value, including $608,709 of
securities on loan (identified cost $765,139,354) (Note 1) $763,299,658
-------------------------------------------------------------------------------
Cash 224,602
-------------------------------------------------------------------------------
Foreign currency (cost $1,889,130) (Note 1) 1,953,945
-------------------------------------------------------------------------------
Dividends, interest and other receivables 12,424,890
-------------------------------------------------------------------------------
Receivable for securities sold 14,445,734
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 543,744
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 2,539,645
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 881,405
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 644,261
-------------------------------------------------------------------------------
Total assets 796,957,884
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 3,787,897
-------------------------------------------------------------------------------
Payable for securities purchased 80,853,869
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,265,200
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 109,036
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 76,971
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 859
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 3,348,766
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 117,037
-------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $260,184) (Note 1) 246,278
-------------------------------------------------------------------------------
TBA sales commitments at value (proceeds receivable
$5,710,309) (Note 1) 5,783,824
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 628,900
-------------------------------------------------------------------------------
Other accrued expenses 45,314
-------------------------------------------------------------------------------
Total liabilities 96,263,951
-------------------------------------------------------------------------------
Net assets $700,693,933
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $837,942,450
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 7,010,795
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (145,595,513)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 1,336,201
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $700,693,933
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($700,693,933 divided by
100,313,083 shares) $6.99
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended September 30, 2003
Investment income:
-------------------------------------------------------------------------------
Interest (net of foreign tax of $3,912) $51,677,854
-------------------------------------------------------------------------------
Dividends 2,185,431
-------------------------------------------------------------------------------
Securities lending 314
-------------------------------------------------------------------------------
Total investment income 53,863,599
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,821,015
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 711,028
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 25,275
-------------------------------------------------------------------------------
Administrative services (Note 2) 12,144
-------------------------------------------------------------------------------
Other 327,855
-------------------------------------------------------------------------------
Total expenses 5,897,317
-------------------------------------------------------------------------------
Expense reduction (Note 2) (19,936)
-------------------------------------------------------------------------------
Net expenses 5,877,381
-------------------------------------------------------------------------------
Net investment income 47,986,218
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 10,355,022
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 653,321
-------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,069,538)
-------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 3,392,416
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 157,278
-------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
-------------------------------------------------------------------------------
foreign currencies during the year (312,176)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sale commitments during the year 60,619,220
-------------------------------------------------------------------------------
Net gain on investments 72,795,543
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $120,781,761
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended
September 30
Increase (decrease) in net assets 2003 2002
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $47,986,218 $52,092,366
-------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 12,488,499 (50,122,603)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 60,307,044 24,243,905
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 120,781,761 26,213,668
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (48,538,019) (52,982,343)
-------------------------------------------------------------------------------
From return of capital -- (1,087,264)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions 829,775 315,588
-------------------------------------------------------------------------------
Total increase (decrease) in net assets 73,073,517 (27,540,351)
Net assets
-------------------------------------------------------------------------------
Beginning of year 627,620,416 655,160,767
-------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $7,010,795 and
distributions in excess of net investment
income of $5,846,674, respectively) $700,693,933 $627,620,416
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of year 100,182,745 100,133,127
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 130,338 49,618
-------------------------------------------------------------------------------
Shares outstanding at end of year 100,313,083 100,182,745
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended September 30
operating performance 2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.26 $6.54 $7.13 $7.57 $8.14
----------------------------------------------------------------------------------------------------------------
Investment operations:
----------------------------------------------------------------------------------------------------------------
From net investment income (a) .48 .52 .58 .63 .58
----------------------------------------------------------------------------------------------------------------
From net realized and unrealized
loss on investments .73 (.26) (.57) (.43) (.47)
----------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.21 .26 .01 .20 .11
----------------------------------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------------------------------
From net
investment income (.48) (.53) (.46) (.64) (.56)
----------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.14) -- (.12)
----------------------------------------------------------------------------------------------------------------
Total distributions (.48) (.54) (.60) (.64) (.68)
----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.99 $6.26 $6.54 $7.13 $7.57
----------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.410 $6.380 $6.050 $6.438 $6.438
----------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 8.35 14.81 3.06 10.72 (9.09)
----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $700,694 $627,620 $655,161 $713,894 $757,533
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .89 .87 .90 .87 .93
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.22 7.97 8.50 8.60 7.39
----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 141.60 (d) 193.33 (d) 111.45 116.71 133.72
----------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Per share net investment income has been determined on the basis of weighted average number of shares
outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
September 30, 2003
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund's investment
objective is to seek, with equal emphasis, high current income and
relative stability of net asset value, by allocating its investments
among the U.S. investment grade sector, high-yield sector and
international sector.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. Such services or dealers determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships, generally recognized by institutional traders,
between securities. For foreign investments, if trading or events
occurring in other markets after the close of the principal exchange in
which the securities are traded are expected to materially affect the
value of the investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees. Securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate.
Short-term investments having remaining maturities of 60 days or less
are valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date. Non-cash
dividends, if any, are recorded at the fair market value of the
securities received. All premiums/discounts are amortized /accreted on a
yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.The
potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
H) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized as realized gain
or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
I) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
J) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
K) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into. TBA sale commitments outstanding at period
end are listed after The fund's portfolio.
L) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At September 30, 2003, the value
of securities loaned amounted to $608,709. The fund received cash
collateral of $628,900 which is pooled with collateral of other Putnam
funds into 36 issuers of high grade short-term investments.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At September 30, 2003, the fund had a capital loss carryover of
$139,616,926 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
---------------------------------------
$2,792,982 September 30, 2004
1,554,563 September 30, 2005
10,039,981 September 30, 2007
25,640,537 September 30, 2008
24,593,458 September 30, 2009
27,431,170 September 30, 2010
47,564,235 September 30, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending September 30, 2004, $3,314,449 of losses recognized during the
period November 1, 2002 to September 30, 2003.
N) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, the expiration of a capital
loss carryover, dividends payable, defaulted bond interest, realized and
unrealized gains and losses on certain futures contracts, market
discount, and interest on payment-in-kind securities. Reclassifications
are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations. For the year ended September 30, 2003, the
fund reclassified $13,409,271 to increase undistributed net investment
income and $7,132,420 to decrease paid-in-capital, with an increase to
accumulated net realized losses of $6,276,851.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $42,917,213
Unrealized depreciation (46,984,073)
------------
Net unrealized depreciation (4,066,860)
Undistributed ordinary income 12,509,386
Capital loss carryforward (139,616,926)
Post October loss (3,314,449)
Cost for federal income
tax purposes $767,366,518
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.75% of the first $500 million
of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended September 30, 2003,
the fund's expenses were reduced by $19,936 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,144 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustees compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustees compensation and expenses in the Statement of
assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended September 30, 2003, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $961,981,975 and
$1,006,790,695, respectively. Purchases and sales of U.S. government
obligations aggregated $427,384,969 and $425,917,066, respectively.
Note 4
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by the
Securities and Exchange Commission in partial resolution of administrative
and cease-and-desist proceedings initiated by the SEC on October 28, 2003
in connection with alleged excessive short-term trading by certain
investment professionals. Under the order, Putnam Management will institute
new employee trading restrictions and enhanced employee trading compliance,
retain an independent compliance consultant, and take other remedial
actions. Putnam Management neither admitted nor denied the order's findings
that it willfully violated provisions of the securities laws. A civil
monetary penalty and other monetary relief, if any, will be determined at a
later date. Putnam Management, and not the investors in any Putnam fund,
will bear all costs, including civil penalties and associated legal fees.
Administrative proceedings initiated by the Commonwealth of Massachusetts
on October 28, 2003 against Putnam Management in connection with alleged
market timing activities by Putnam employees and by participants in some
Putnam-administered 401(k) plans are pending. The SEC's and Commonwealth's
allegations also serve as the general basis for numerous lawsuits,
including purported class action lawsuits, filed against Putnam Management
and certain related parties. Based on currently available information,
Putnam Management believes that the pending actions are not likely to
materially affect its ability to provide investment management services to
its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's trading policies and controls.
Federal tax information
(Unaudited)
The fund has designated 3.03% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended September 30, 2003, the fund hereby designates
2.19%, or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
Results of June 12, 2003 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 12, 2003.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
----------------------------------------------------------------
Jameson A. Baxter 92,175,160 2,589,781
Charles B. Curtis 92,192,830 2,572,112
John A. Hill 92,195,839 2,569,102
Ronald J. Jackson 92,221,055 2,543,887
Paul L. Joskow 92,182,800 2,582,141
Elizabeth T. Kennan 92,174,503 2,590,438
John H. Mullin, III 92,178,436 2,586,505
Robert E. Patterson 92,198,075 2,566,867
George Putnam, III 92,187,867 2,577,074
A.J.C. Smith 92,182,051 2,582,891
W. Thomas Stephens 92,166,247 2,598,694
W. Nicholas Thorndike 92,124,495 2,640,446
All tabulations are rounded to nearest whole number.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on
the board of the Whitehead Institute for Biomedical Research (a
non-profit research institution) and has been President of the Yale
University Council since 1993. Prior to February 2002, he was a Director
of State Farm Indemnity Company (an automobile insurance company) and
prior to March 2000 he was a Director of New England Electric System (a
public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock,
LLC (cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director
of Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire
Life Insurance, and Kentucky Home Life Insurance. She is a Trustee of
Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of
Five Colleges Incorporated, as a Trustee of Notre Dame University, and
is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington
& Lee University, where he served as Chairman of the Investment
Committee. Prior to May 2001, he was a Director of Graphic Packaging
International Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center, as a
Trustee of Sea Education Association, and as a Director of Brandywine
Trust Company. Prior to December 2001, he was President and Trustee of
Cabot Industrial Trust (a publicly traded real estate investment trust).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership (a
registered investment advisor involved in institutional real estate
investments). Prior to 1990, he served as Executive Vice President of
Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of
Cabot Partners) and as a Senior Vice President of the Beal Companies (a
real estate management, investment, and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer) and The Providence Journal Co. (a newspaper publisher). He
is also a Trustee of Northeastern University and an honorary Trustee of
Massachusetts General Hospital, where he previously served as Chairman
and President. Prior to September 2000, he was a Director of Bradley
Real Estate, Inc.; prior to April 2000, he was a Trustee of Eastern
Utilities Associates; and prior to December 2001, he was a Trustee of
Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of Marsh &
McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of September 30, 2003, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer
and Principal Financial Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Auditors
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal
Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal
Executive Officer
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
----------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
----------------------
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203400 074 11/03
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Items 5-6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
-------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
------------------
Item 9. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: November 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: November 25, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: November 25, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: November 25, 2003